UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______ to ______
Commission File Number: 001-38895
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (806 )
792-7101
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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The
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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.
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Large accelerated filer
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☐
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☒
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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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.
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Page
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PART I.
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3
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Item 1.
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3
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3
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4
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6
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7
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8
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Item 2.
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27
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Item 3.
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47
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Item 4.
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47
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PART II.
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48
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Item 1.
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48
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Item 1A.
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48
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Item 2.
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48
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Item 3.
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48
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Item 4.
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48
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Item 5.
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48
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Item 6.
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49
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50
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SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
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March 31,
2024
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December 31,
2023
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(Unaudited)
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||||||||
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ASSETS
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Cash and due from banks
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$
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$
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Interest-bearing deposits in banks
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Cash and cash equivalents
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Securities available for sale
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Loans held for sale ($
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Loans held for investment
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Allowance for credit losses on loans
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(
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)
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(
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Loans held for investment, net
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Accrued interest receivable
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Premises and equipment, net
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Bank-owned life insurance
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Goodwill
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Intangible assets, net
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Mortgage servicing rights
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Deferred tax asset, net
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Other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Deposits:
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Noninterest-bearing
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$
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$
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Interest-bearing
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Total deposits
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Accrued expenses and other liabilities
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Subordinated debt
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Junior subordinated deferrable interest debentures
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Total liabilities
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Stockholders’ equity:
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Common stock, $
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive loss
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(
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)
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(
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)
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Total stockholders’ equity
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Total liabilities and stockholders’ equity
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$
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$
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share data)
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Three Months Ended
March 31,
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2024
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2023
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Interest income:
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Loans, including fees
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$
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$
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Securities:
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Taxable
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Non-taxable
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Federal funds sold and interest-bearing deposits in banks
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Total interest income
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Interest expense:
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Deposits
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Subordinated debt
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Junior subordinated deferrable interest debentures
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Total interest expense
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||||||
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Net interest income
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Provision for credit losses
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Net interest income, after provision for credit losses
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Noninterest income:
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Service charges on deposit accounts
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Income from insurance activities
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Net gain on sales of loans
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Bank card services and interchange fees
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Other mortgage banking income (loss)
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( |
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Investment commissions
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Fiduciary fees
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Other
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Total noninterest income
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Noninterest expense:
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Salaries and employee benefits
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Occupancy and equipment, net
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Professional services
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Marketing and development
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IT and data services
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Bank card expenses
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Appraisal expenses
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Other
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Total noninterest expense
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Income before income taxes
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Income tax expense
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Net income
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$
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$
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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)
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Three Months Ended
March 31,
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2024
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2023
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Earnings per share:
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Basic
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$
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$
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Diluted
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$
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$
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Net income
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$
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$
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Other comprehensive income (loss):
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Unrealized gains (losses) on securities available for sale
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(
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)
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Less: Change in fair value on hedged state and municipal securities
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(
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)
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Tax effect
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(
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)
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|||||
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Other comprehensive income (loss)
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(
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)
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Comprehensive income
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$
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$
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||||
The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share data)
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Common Stock
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Additional
Paid-in
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Retained
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Accumulated
Other
Comprehensive
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|||||||||||||||||||||
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Shares
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Amount
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Capital
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Earnings
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Income (Loss)
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Total
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|||||||||||||||||||
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Three Months Ended March 31, 2023
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Balance at beginning of period
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Net income
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— | |||||||||||||||||||||||
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Cash dividends declared - $
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— | ( |
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Other comprehensive income
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— | |||||||||||||||||||||||
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Impact of adoption of ASU 2016-13 - CECL
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— | ( |
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Exercise of employee stock options and vesting of restricted stock units, net of
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( |
) | ( |
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Stock-based compensation
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— | |||||||||||||||||||||||
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Balance at end of period
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
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Balance at beginning of period
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Net income
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— | |||||||||||||||||||||||
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Cash dividends declared - $
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— | ( |
) | ( |
) | |||||||||||||||||||
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Other comprehensive loss
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— | ( |
) | ( |
) | |||||||||||||||||||
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Exercise of employee stock options and vesting of restricted stock units, net of
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( |
) | ( |
) | ||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ( |
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Stock-based compensation
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— | |||||||||||||||||||||||
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Balance at end of period
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
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Three Months Ended
March 31,
|
||||||||
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2024
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2023
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|||||||
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Cash flows from operating activities:
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||||||||
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Net income
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$
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$
|
|
||||
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Adjustments to reconcile net income to net cash from operating activities:
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||||||||
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Provision for credit losses
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Depreciation and amortization
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Accretion and amortization
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Other gains, net
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(
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)
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|||||
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Net gain on sales of loans
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(
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)
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(
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)
|
||||
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Proceeds from sales of loans held for sale
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||||||
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Loans originated for sale
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(
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)
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(
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)
|
||||
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Deferred income tax expense
|
||||||||
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Earnings on bank-owned life insurance
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(
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)
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(
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)
|
||||
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Stock-based compensation
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|
||||||
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Change in valuation of mortgage servicing rights
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(
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)
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|
|||||
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Net change in:
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||||||||
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Accrued interest receivable and other assets
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||||||
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Accrued expenses and other liabilities
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(
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)
|
|||||
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Net cash provided by operating activities
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||||||
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Cash flows from investing activities:
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||||||||
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Activity in securities available for sale:
|
||||||||
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Purchases
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(
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)
|
|
|||||
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Maturities, prepayments, and calls
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|
|
||||||
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Loan originations and principal collections, net
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|
(
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)
|
|||||
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Purchases of premises and equipment
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(
|
)
|
(
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)
|
||||
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Proceeds from sales of premises and equipment
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|
|
||||||
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Proceeds from sales of foreclosed assets
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|
||||||
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Net cash provided by (used in) investing activities
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|
(
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)
|
|||||
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Cash flows from financing activities:
|
||||||||
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Net change in deposits
|
|
|
||||||
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Payments to tax authorities for stock-based compensation
|
(
|
)
|
(
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)
|
||||
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Cash dividends paid on common stock
|
(
|
)
|
(
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)
|
||||
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Payments to repurchase common stock
|
(
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)
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|
|||||
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Net cash provided by financing activities
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|
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Net change in cash and cash equivalents
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Beginning cash and cash equivalents
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Ending cash and cash equivalents
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$
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|
$
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|
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Supplemental disclosures of cash flow information:
|
||||||||
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Interest paid on deposits and borrowed funds
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$
|
|
$
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|
||||
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Income taxes paid
|
||||||||
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Supplemental schedule of noncash activities:
|
||||||||
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Loans transferred to foreclosed assets
|
$
|
|
$
|
|
||||
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Additions to mortgage servicing rights
|
|
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(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:
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Wholly-Owned, Consolidated Subsidiaries:
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Bank subsidiary
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Non-bank subsidiary
|
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Non-bank subsidiary
|
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Non-bank subsidiary
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Non-bank subsidiary
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|
Wholly-Owned, Equity Method Subsidiaries:
|
|
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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 Events – The
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 31, 2024
|
||||||||||||||||||||
|
Available for sale:
|
||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
$
|
|
||||||||||
|
Residential mortgage-backed
securities
|
( |
) | ||||||||||||||||||
|
Commercial mortgage-backed securities
|
( |
) | ||||||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
(
|
)
|
|
|||||||||||||||
|
Asset-backed and other amortizing securities
|
|
|
(
|
)
|
|
|||||||||||||||
|
Other securities
|
|
|
(
|
)
|
|
|||||||||||||||
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
$
|
|
|||||||||||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance
for Credit
Losses
|
Fair
Value
|
||||||||||||||||
|
December 31, 2023
|
||||||||||||||||||||
|
Available for sale:
|
||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
$
|
|
||||||||||
|
Residential mortgage-backed securities
|
( |
) | ||||||||||||||||||
|
Commercial mortgage-backed securities
|
( |
) | ||||||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
(
|
)
|
|
|||||||||||||||
|
Asset-backed and other amortizing securities
|
|
|
(
|
)
|
|
|||||||||||||||
|
Other securities
|
|
|
(
|
)
|
|
|||||||||||||||
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
$
|
|
|||||||||||
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
|
$
|
|
$
|
|
||||
|
After 1 year through 5 years
|
|
|
||||||
|
After 5 years through 10 years
|
|
|
||||||
|
After 10 years
|
|
|
||||||
|
Declining-balance securities
|
|
|
||||||
|
$
|
|
$
|
|
|||||
At both March 31, 2024 and December 31, 2023, there were no
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 31, 2024
|
||||||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Residential mortgage-backed securities
|
||||||||||||||||||||||||
|
Commercial mortgage-backed securities
|
||||||||||||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
|
|
|
|
||||||||||||||||||
|
Asset-backed and other amortizing securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Other securities
|
|
|
|
|
|
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||
|
December 31, 2023
|
||||||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Residential mortgage-backed securities
|
||||||||||||||||||||||||
|
Commercial mortgage-backed securities
|
||||||||||||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
|
|
|
|
||||||||||||||||||
|
Asset-backed and other amortizing securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Other securities
|
|
|
|
|
|
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||
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):
|
March 31,
2024
|
December 31,
2023
|
|||||||
|
Commercial real estate
|
$
|
|
$
|
|
||||
|
Commercial - specialized
|
|
|
||||||
|
Commercial - general
|
|
|
||||||
|
Consumer:
|
||||||||
|
1-4 family residential
|
|
|
||||||
|
Auto loans
|
|
|
||||||
|
Other consumer
|
|
|
||||||
|
Construction
|
|
|
||||||
|
|
|
|||||||
|
Allowance for credit losses on loans
|
(
|
)
|
(
|
)
|
||||
|
Loans, net
|
$
|
|
$
|
|
||||
The Company has certain lending policies, underwriting standards, and procedures in place that are designed to maximize loan income with an acceptable level of risk.
Management reviews and approves these policies, underwriting standards, and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies,
non-performing, and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.
Commercial Real Estate – Underwriting standards have been designed to
determine whether the borrower possesses sound business ethics and practices, evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed and ensure appropriate collateral is obtained to
secure the loan. Commercial real estate loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on
the successful operation of the property securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the
Company’s real estate portfolio are diversified by type and geographic location. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.
Commercial – General and Specialized – Commercial loans are underwritten
after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, evaluate current and projected cash flows to
determine the ability of the borrower to repay their obligations, as agreed and ensure appropriate collateral is obtained to secure the loan. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on
the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and typically include personal guarantees.
Owner-occupied real estate is included in commercial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower’s business rather than on income-producing properties or the sale of the properties.
Commercial loans are grouped into two distinct sub-categories: specialized and general. Commercial related segments that are considered
“specialized” include agricultural production and real estate loans, energy loans, and finance, investment, and insurance loans. Commercial related segments that contain a broader divers