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 March 31, 2024

OR

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 May 2, 2024, the registrant had 16,419,362 shares of common stock, par value $1.00 per share, outstanding.



TABLE OF CONTENTS

   
Page
PART I.
3
Item 1.
3
 
3
 
4
 
6
 
7
 
8
Item 2.
27
Item 3.
47
Item 4.
47
PART II.
48
Item 1.
48
Item 1A.
48
Item 2.
48
Item 3.
48
Item 4.
48
Item 5.
48
Item 6.
49
50

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)

 
March 31,
2024
   
December 31,
2023
 
   
(Unaudited)
       
ASSETS
           
Cash and due from banks
 
$
41,273
   
$
62,821
 
Interest-bearing deposits in banks
   
330,666
     
267,337
 
Cash and cash equivalents
   
371,939
     
330,158
 
Securities available for sale
   
599,869
     
622,762
 
Loans held for sale ($9,686 and $6,615 at fair value at March 31, 2024 and December 31, 2023, respectively)
   
15,751
     
14,499
 
Loans held for investment
   
3,011,799
     
3,014,153
 
Allowance for credit losses on loans
   
(42,174
)
   
(42,356
)
Loans held for investment, net
    2,969,625       2,971,797  
Accrued interest receivable
   
16,605
     
20,881
 
Premises and equipment, net
   
54,221
     
55,070
 
Bank-owned life insurance
   
74,879
     
74,504
 
Goodwill
   
19,315
     
19,315
 
Intangible assets, net
   
2,247
     
2,429
 
Mortgage servicing rights
   
26,843
     
26,569
 
Deferred tax asset, net
   
21,309
     
19,413
 
Other assets
   
46,390
     
47,396
 
Total assets
 
$
4,218,993
   
$
4,204,793
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Deposits:
               
Noninterest-bearing
 
$
974,174
   
$
974,201
 
Interest-bearing
   
2,664,397
     
2,651,952
 
Total deposits
   
3,638,571
     
3,626,153
 
Accrued expenses and other liabilities
   
61,496
     
61,358
 
Subordinated debt
   
63,821
     
63,775
 
Junior subordinated deferrable interest debentures
   
46,393
     
46,393
 
Total liabilities
   
3,810,281
     
3,797,679
 
                 
Stockholders’ equity:
               
Common stock, $1.00 par value per share, 30,000,000 shares authorized; 16,431,755 and 16,417,099 issued and outstanding at March 31, 2024 and December 31, 2023, respectively
   
16,432
     
16,417
 
Additional paid-in capital
   
97,406
     
97,107
 
Retained earnings
   
354,011
     
345,264
 
Accumulated other comprehensive loss
   
(59,137
)
   
(51,674
)
Total stockholders’ equity
   
408,712
     
407,114
 
Total liabilities and stockholders’ equity
 
$
4,218,993
   
$
4,204,793
 

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

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share data)

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Interest income:
           
Loans, including fees
 
$
48,932
   
$
39,597
 
Securities:
               
Taxable
   
5,511
     
5,240
 
Non-taxable
   
809
     
1,116
 
Federal funds sold and interest-bearing deposits in banks
   
3,475
     
1,495
 
Total interest income
   
58,727
     
47,448
 
Interest expense:
               
Deposits
   
21,663
     
11,370
 
Subordinated debt
   
835
     
1,012
 
Junior subordinated deferrable interest debentures
   
861
     
751
 
Total interest expense
   
23,359
     
13,133
 
Net interest income
   
35,368
     
34,315
 
Provision for credit losses
   
830
     
1,010
 
Net interest income, after provision for credit losses
   
34,538
     
33,305
 
Noninterest income:
               
Service charges on deposit accounts
   
1,813
     
1,701
 
Income from insurance activities
   
34
     
1,411
 
Net gain on sales of loans
   
2,654
     
2,918
 
Bank card services and interchange fees
   
3,061
     
2,956
 
Other mortgage banking income (loss)
    1,291       (633 )
Investment commissions
   
434
     
389
 
Fiduciary fees
   
754
     
600
 
Other
   
1,368
     
1,349
 
Total noninterest income
   
11,409
     
10,691
 
Noninterest expense:
               
Salaries and employee benefits
   
18,988
     
19,254
 
Occupancy and equipment, net
   
3,920
     
3,832
 
Professional services
   
1,483
     
1,648
 
Marketing and development
   
754
     
936
 
IT and data services
   
990
     
864
 
Bank card expenses
   
1,397
     
1,352
 
Appraisal expenses
   
227
     
278
 
Other
   
4,171
     
4,197
 
Total noninterest expense
   
31,930
     
32,361
 
Income before income taxes
   
14,017
     
11,635
 
Income tax expense
   
3,143
     
2,391
 
Net income
 
$
10,874
   
$
9,244
 

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

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
(Unaudited)
(Dollars in thousands, except per share data)

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Earnings per share:
           
Basic
 
$
0.66
   
$
0.54
 
Diluted
 
$
0.64
   
$
0.53
 
                 
Net income
 
$
10,874
   
$
9,244
 
Other comprehensive income (loss):
               
Unrealized gains (losses) on securities available for sale
   
(10,832
)
   
8,624
 
Less: Change in fair value on hedged state and municipal securities
   
1,385
     
(2,638
)
Tax effect
   
1,984
     
(1,257
)
Other comprehensive income (loss)
   
(7,463
)
   
4,729
 
Comprehensive income
 
$
3,411
   
$
13,973
 

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

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
 
Three Months Ended March 31, 2023
                                   
Balance at beginning of period
    17,027,197     $ 17,027     $ 112,834     $ 292,261     $ (65,108 )   $ 357,014  
Net income
                      9,244             9,244  
Cash dividends declared - $0.13 per share
                      (2,208 )           (2,208 )
Other comprehensive income
                            4,729       4,729  
Impact of adoption of ASU 2016-13 - CECL
                      (997 )           (997 )
Exercise of employee stock options and vesting of restricted stock units, net of 13,573 shares for cashless exercise and net of 13,892 shares for taxes
    35,375       35       (378 )                 (343 )
Stock-based compensation
                525                   525  
Balance at end of period
    17,062,572     $ 17,062     $ 112,981     $ 298,300     $ (60,379 )   $ 367,964  
                                                 
Three Months Ended March 31, 2024                                                
Balance at beginning of period
    16,417,099     $ 16,417     $ 97,107     $ 345,264     $ (51,674 )   $ 407,114  
Net income
                      10,874             10,874  
Cash dividends declared - $0.13 per share
                      (2,127 )           (2,127 )
Other comprehensive loss
                            (7,463 )     (7,463 )
Exercise of employee stock options and vesting of restricted stock units, net of 2,606 shares for cashless exercise and net of 4,675 shares for taxes
    16,062       16       (148 )                 (132 )
Repurchases of common stock
    (1,406 )     (1 )     (34 )                 (35 )
Stock-based compensation
                481                   481  
Balance at end of period
    16,431,755     $ 16,432     $ 97,406     $ 354,011     $ (59,137 )   $ 408,712  

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

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Cash flows from operating activities:
           
Net income
 
$
10,874
   
$
9,244
 
Adjustments to reconcile net income to net cash from operating activities:
               
Provision for credit losses
   
830
     
1,010
 
Depreciation and amortization
   
1,625
     
1,698
 
Accretion and amortization
   
594
     
991
 
Other gains, net
   
     
(79
)
Net gain on sales of loans
   
(2,654
)
   
(2,918
)
Proceeds from sales of loans held for sale
   
69,962
     
86,893
 
Loans originated for sale
   
(68,779
)
   
(74,291
)
Deferred income tax expense
    88       47  
Earnings on bank-owned life insurance
   
(375
)
   
(300
)
Stock-based compensation
   
481
     
525
 
Change in valuation of mortgage servicing rights
   
(55
)
   
1,950
 
Net change in:
               
Accrued interest receivable and other assets
   
6,496
     
609
 
Accrued expenses and other liabilities
   
73
     
(4
)
Net cash provided by operating activities
   
19,160
     
25,375
 
                 
Cash flows from investing activities:
               
Activity in securities available for sale:
               
Purchases
   
(299,849
)
   
 
Maturities, prepayments, and calls
   
311,363
     
10,811
 
Loan originations and principal collections, net
   
1,027
     
(41,634
)
Purchases of premises and equipment
   
(474
)
   
(1,560
)
Proceeds from sales of premises and equipment
   
     
642
 
Proceeds from sales of foreclosed assets
   
430
     
412
 
Net cash provided by (used in) investing activities
   
12,497
     
(31,329
)
                 
Cash flows from financing activities:
               
Net change in deposits
   
12,418
     
101,624
 
Payments to tax authorities for stock-based compensation
   
(132
)
   
(343
)
Cash dividends paid on common stock
   
(2,127
)
   
(2,208
)
Payments to repurchase common stock
   
(35
)
   
 
Net cash provided by financing activities
   
10,124
     
99,073
 
                 
Net change in cash and cash equivalents
   
41,781
     
93,119
 
Beginning cash and cash equivalents
   
330,158
     
234,883
 
Ending cash and cash equivalents
 
$
371,939
   
$
328,002
 

               
Supplemental disclosures of cash flow information:
               
Interest paid on deposits and borrowed funds
 
$
24,188
   
$
13,215
 
Income taxes paid
           
Supplemental schedule of noncash activities:
               
Loans transferred to foreclosed assets
 
$
380
   
$
445
 
Additions to mortgage servicing rights
   
219
     
271
 

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

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Operations – South Plains Financial, Inc. (“SPFI”) is a Texas corporation and registered bank holding company that conducts its principal activities through its subsidiaries from offices located throughout Texas and Eastern New Mexico. Principal activities include commercial and retail banking, along with investment, trust, and mortgage services. The following were subsidiaries of SPFI as of March 31, 2024:

Wholly-Owned, Consolidated Subsidiaries:
 
City Bank
Bank subsidiary
Ruidoso Retail, Inc.
Non-bank subsidiary
CB Provence, LLC
Non-bank subsidiary
CBT Brushy Creek, LLC
Non-bank subsidiary
CBT Properties, LLC
Non-bank subsidiary
Wholly-Owned, Equity Method Subsidiaries:
 
South Plains Financial Capital Trusts (“SPFCT”) III-V
Non-bank subsidiaries

On April 1, 2023, SPFI entered into a Securities Purchase Agreement (“Agreement”) with Alliant Insurance Services, Inc. (“Alliant”), providing for the sale of Windmark Insurance Agency, Inc. (“Windmark”), City Bank’s wholly-owned subsidiary,  through a sale of all of the outstanding shares of capital stock of Windmark to Alliant. The transaction was consummated on April 1, 2023. Pursuant to the terms and subject to the conditions of the Agreement, SPFI received an aggregate purchase price of $36.1 million in exchange for Windmark’s common shares, representing a pre-tax gain of $33.8 million. This transaction did not meet the criteria for discontinued operations reporting.

Basis of Presentation and Consolidation
The consolidated financial statements in this Quarterly Report on Form 10-Q for the three months ended March 31, 2024 (this “Form 10-Q”) include the accounts of SPFI and its wholly-owned consolidated subsidiaries (collectively referred to as the “Company”) identified above. All significant intercompany balances and transactions have been eliminated in consolidation.

The interim consolidated financial statements in this Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements, and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 15, 2024 (the “2023 Annual Report on Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Determination of the adequacy of the allowance for credit losses (“ACL”) is a material estimate that is particularly susceptible to significant change in the near term; the assumptions used in stock-based compensation, derivatives, mortgage servicing rights, and fair values of financial instruments can also involve significant management estimates.

Recent Accounting Pronouncements – Updates to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) are prescribed in Accounting Standards Updates (“ASUs”), which are not authoritative until incorporated into the ASC.

ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The amendments in this Update modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to, or technical corrections of the current requirements. Each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. The amendments in this ASU are not expected to have a material impact on the results of operations or financial position.

ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this Update require public entities to disclose information about reportable segments’ significant expenses on an interim and annual basis. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 is not expected to have a material effect on the Company’s financial statements.



ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this Update are intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments intended to improve the effectiveness of income tax disclosures. This update is effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-09 is not expected to have a material effect on the Company’s financial statements.

Subsequent EventsThe Company has evaluated subsequent events and transactions from March 31, 2024 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP.

2.  SECURITIES

The amortized cost, related gross unrealized gains and losses, allowance for credit losses, and estimated fair value of securities available for sale at the dates indicated follows (dollars in thousands):

 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Allowance
for Credit
Losses
   
Fair
Value
 
March 312024
                             
Available for sale:
                             
State and municipal
 
$
201,459
   
$
1
   
$
(23,812
)
  $    
$
177,648
 
Residential mortgage-backed securities
    344,258             (59,093 )           285,165  
Commercial mortgage-backed securities
    47,576             (6,722 )           40,854  
Commercial collateralized mortgage obligations
   
69,486
     
     
(414
)
         
69,072
 
Asset-backed and other amortizing securities
   
17,990
     
     
(1,661
)
         
16,329
 
Other securities
   
12,000
     
     
(1,199
)
         
10,801
 
   
$
692,769
   
$
1
   
$
(92,901
)
  $    
$
599,869
 

 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Allowance
for Credit
Losses
   
Fair
Value
 
December 312023
                             
Available for sale:
                             
State and municipal
 
$
202,814
   
$
2
   
$
(22,241
)
  $    
$
180,575
 
Residential mortgage-backed securities
    351,251             (50,547 )           300,704  
Commercial mortgage-backed securities
    47,898             (6,150 )           41,748  
Commercial collateralized mortgage obligations
   
72,391
     
     
(461
)
         
71,930
 
Asset-backed and other amortizing securities
   
18,476
     
     
(1,436
)
         
17,040
 
Other securities
   
12,000
     
     
(1,235
)
         
10,765
 
   
$
704,830
   
$
2
   
$
(82,070
)
  $    
$
622,762
 

The amortized cost and estimated fair value of securities at March 31, 2024 are presented below by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Declining-balance securities are shown separately since they are not due at a single maturity date.

 
Available for Sale
 
   
Amortized
Cost
   
Fair
Value
 
Within 1 year
 
$
409
   
$
403
 
After 1 year through 5 years
   
6,380
     
6,198
 
After 5 years through 10 years
   
16,170
     
14,940
 
After 10 years
   
190,500
     
166,908
 
Declining-balance securities
   
479,310
     
411,420
 
   
$
692,769
   
$
599,869
 

At both March 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. government, its agencies, or its sponsored enterprises, in an amount greater than 10% of stockholders’ equity.

Securities with a carrying value of approximately $425.6 million and $438.9 million at March 31, 2024 and December 31, 2023, respectively, were pledged to collateralize public deposits and for other purposes as required or permitted by law.

The following table segregates securities with unrealized losses at the periods indicated, by the duration they have been in a loss position for which an allowance for credit losses has not been recorded (dollars in thousands):

 
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
March 312024
                                   
State and municipal
 
$
787
   
$
1
   
$
175,575
   
$
23,811
   
$
176,362
   
$
23,812
 
Residential mortgage-backed securities
    9             285,156       59,093       285,165       59,093  
Commercial mortgage-backed securities
                40,854       6,722       40,854       6,722  
Commercial collateralized mortgage obligations
   
     
     
69,072
     
414
     
69,072
     
414
 
Asset-backed and other amortizing securities
   
     
     
16,328
     
1,661
     
16,328
     
1,661
 
Other securities
   
3,290
     
210
     
7,511
     
989
     
10,801
     
1,199
 
   
$
4,086
   
$
211
   
$
594,496
   
$
92,690
   
$
598,582
   
$
92,901
 
                                                 
December 312023
                                               
State and municipal
 
$
207
   
$
   
$
177,908
   
$
22,241
   
$
178,115
   
$
22,241
 
Residential mortgage-backed securities
    9             300,695       50,547       300,704       50,547  
Commercial mortgage-backed securities
                41,748       6,150       41,748       6,150  
Commercial collateralized mortgage obligations
   
     
     
71,930
     
461
     
71,930
     
461
 
Asset-backed and other amortizing securities
   
     
     
17,040
     
1,436
     
17,040
     
1,436
 
Other securities
   
3,286
     
214
     
7,479
     
1,021
     
10,765
     
1,235
 
   
$
3,502
   
$
214
   
$
616,800
   
$
81,856
   
$
620,302
   
$
82,070
 

There were 144 securities with an unrealized loss at March 31, 2024, generally due to increases in market rates. Management evaluates AFS securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or non-credit related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for the anticipated recovery in fair value. Management does not have the intent to sell any of the securities in an unrealized loss position as there are adequate liquidity sources to meet expected and unexpected funding needs. The fair value of these securities is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of March 31, 2024, management believes the unrealized loss positions detailed in the previous table are due to non-credit related factors, including changes in interest rates and other market conditions, and therefore no ACL or losses have been recognized or realized in the consolidated financial statements.

3.  LOANS HELD FOR INVESTMENT

Loans held for investment are summarized by category as of the periods presented below (dollars in thousands):