Company Overview and History
South Plains Financial, Inc. (SPFI) is a Texas-based bank holding company that has established itself as a reliable financial institution catering to the needs of small and medium-sized businesses, as well as individual customers, in its local markets. With a history spanning over five decades, the company has weathered numerous economic cycles, demonstrating its resilience and adaptability in the face of changing market conditions.
Rooted in Lubbock, Texas, South Plains Financial operates primarily through its wholly-owned subsidiary, City Bank, which serves customers across the state and in Eastern New Mexico. The bank’s diversified loan portfolio and focus on fostering long-term relationships with its clientele have been instrumental in its sustained performance. South Plains Financial, Inc. was formed in 1988 as the bank holding company for City Bank, which was originally chartered in 1986. Over the years, the company has grown through both organic expansion and strategic acquisitions, enhancing its footprint across West Texas and Eastern New Mexico. In addition to its Lubbock headquarters, the bank now has operations in Dallas, El Paso, Greater Houston, the Permian Basin, and College Station, Texas markets, as well as the Ruidoso, New Mexico market.
Financials
In the latest fiscal year ended December 31, 2023, South Plains Financial reported net income of $62.74 million, representing a 7.7% increase from the previous year’s figure of $58.24 million. The company’s revenue for the same period stood at $176.23 million, a modest decline of 1.5% compared to the $209.25 million recorded in 2022. Despite the slight revenue decrease, South Plains Financial managed to improve its bottom line, showcasing its ability to navigate the evolving market landscape. It’s worth noting that in 2023, SPFI faced a significant challenge when it entered into an agreement to sell its wholly-owned insurance subsidiary, Windmark Insurance Agency, Inc. The $36.1 million sale, which closed in the second quarter of 2023, represented a pre-tax gain of $33.8 million for the company. This transaction allowed SPFI to focus on its core banking operations and streamline its business.
The company’s strong financial footing is further highlighted by its healthy balance sheet. As of December 31, 2023, South Plains Financial reported total assets of $4.20 billion, up 6.6% from the $3.94 billion recorded at the end of the prior year. The bank’s loan portfolio, a key driver of its success, grew by 3.3% to $3.01 billion, while its deposit base expanded by 2.5% to $3.63 billion during the same period.
For the most recent quarter ended September 30, 2024, South Plains Financial reported revenue of $47.93 million, a slight decrease of 0.1% compared to the same quarter in the previous year. Net income for the quarter stood at $11.21 million, representing a 17.0% decrease year-over-year. The company’s operating cash flow (OCF) for the quarter was $20.75 million, down 26.0% from the previous year, while free cash flow (FCF) decreased by 24.8% to $22.30 million. The decrease in revenue, net income, OCF, and FCF was primarily due to a $1.4 million decrease in the fair value adjustment of mortgage servicing rights, partially offset by $0.7 million in non-recurring insurance proceeds.
South Plains Financial maintains a strong liquidity position, with a debt-to-equity ratio of 0.25 and cash reserves of $471.17 million as of September 30, 2024. The bank has access to a $664.20 million line of credit with the Federal Reserve Bank of Dallas and $140.00 million in uncollateralized lines of credit with multiple banks, which were not drawn upon during the quarter. The company’s current ratio and quick ratio both stand at 0.46, indicating a solid ability to meet short-term obligations.
Loan Portfolio and Investment Strategy
One of the hallmarks of South Plains Financial’s strategy is its focus on maintaining a well-diversified loan portfolio. As of September 30, 2024, the company’s loan book comprised 37.0% commercial real estate loans, 13.4% commercial – specialized loans, 17.3% commercial – general loans, 18.5% consumer 1-4 family residential loans, 8.3% auto loans, 2.2% other consumer loans, and 3.4% construction loans. This balanced approach helps mitigate risk and provides the bank with a solid foundation for growth.
In addition to its loan portfolio, South Plains Financial’s investment securities portfolio plays a crucial role in its overall risk management. As of September 30, 2024, the company’s securities portfolio stood at $606.89 million, a slight decrease of 2.5% from the $622.76 million reported at the end of 2023. The portfolio is primarily composed of state and municipal securities, mortgage-backed securities, and collateralized mortgage obligations, reflecting the bank’s conservative investment strategy.
Liquidity
The company’s liquidity position remains strong, with a loan-to-deposit ratio of 82% as of September 30, 2024. This provides South Plains Financial with the flexibility to capitalize on emerging lending opportunities while maintaining a prudent approach to risk management. The bank’s healthy capital ratios, with a common equity Tier 1 capital ratio of 13.25% and a Tier 1 leverage ratio of 11.76% as of the same date, further underscore its financial stability.
Market Presence and Community Commitment
South Plains Financial’s commitment to its local communities is evident in its strong market presence. The company holds the number one or number two deposit market share position in many of its rural Texas and New Mexico markets, showcasing the trust and loyalty it has earned from its customers. This robust deposit franchise serves as a reliable funding source, enabling the bank to support the growth and development of its local economies.
Risk Management and Future Outlook
Despite the challenging macroeconomic environment, South Plains Financial has demonstrated its ability to navigate the uncertainties. The company’s proactive credit risk management, evidenced by a nonperforming loan ratio of 0.74% as of September 30, 2024, has helped it maintain the quality of its loan portfolio. Furthermore, the bank’s measured approach to loan growth, with a focus on disciplined underwriting and pricing, has allowed it to capitalize on emerging opportunities while preserving the overall health of its balance sheet.
Looking ahead, South Plains Financial remains cautiously optimistic about its future prospects. The company’s pipeline of new business opportunities, coupled with the expected decline in interest rates, provides a favorable backdrop for potential loan growth in the coming quarters. Moreover, the bank’s diversified revenue streams, including its mortgage banking and treasury management operations, offer additional avenues for growth and stability.
For the fourth quarter of 2024, South Plains Financial expects loan growth to be relatively flat, as agricultural loans typically begin to pay off seasonally and the bank could continue to see an elevated level of loan payoffs. The company anticipates noninterest expense to remain relatively flat in the fourth quarter compared to the third quarter. While specific guidance on earnings per share or other financial metrics for the fourth quarter or full year 2025 was not provided, management expressed optimism about the current business pipeline and expected loan growth acceleration in 2025 as headwinds from the indirect auto portfolio and homebuilder inventory reductions begin to stabilize.
Segment Performance
South Plains Financial’s diverse loan portfolio has shown varying performance across its different segments as of September 30, 2024:
Commercial Real Estate Loans: This segment totaled $1.12 billion, representing a 3.6% increase from December 31, 2023. The growth was primarily driven by an increase in multifamily property loans of $67.1 million and other commercial real estate loans of $24.0 million, partially offset by a decrease in commercial land development and construction loans of $51.9 million.
Commercial Loans – Specialized: This portfolio reached $406.25 million, a 9.1% increase from December 31, 2023. The growth was mainly attributed to a $28.5 million increase in energy sector loans and a $5.6 million increase in agricultural loans.
Commercial Loans – General: This segment totaled $526.45 million, showing a 1.8% increase from December 31, 2023. The growth was primarily due to increases in loans to companies in the services industry of $16.0 million, partially offset by a decrease of $4.5 million in restaurant and retail loans.
Consumer Loans: This portfolio decreased by 3.6% to $881.7 million, primarily due to declines of $51.8 million in consumer auto loans and $8.4 million in other consumer loans, partially offset by an increase of $27.7 million in residential mortgage loans.
Construction Loans: This segment decreased by 20.6% to $102.5 million, resulting from reduced demand for residential construction as interest rate levels remained elevated and projects were completed and sold.
Overall, South Plains Financial’s loan portfolio grew by 0.8% to $3.04 billion as of September 30, 2024, compared to $3.01 billion as of December 31, 2023. The growth was primarily driven by increases in direct-energy loans, seasonal agricultural-related loans, and single-family property loans, partially offset by decreases in consumer auto loans and residential construction loans.
The company’s allowance for credit losses on loans stood at $42.9 million as of September 30, 2024, compared to $42.4 million as of December 31, 2023, representing a 1.3% increase. This increase was largely attributable to the growth in loans held for investment.
Conclusion
In conclusion, South Plains Financial’s long-standing history, prudent risk management practices, and strong community ties have positioned the company as a reliable partner for its customers and shareholders alike. As the market navigates through the current volatility, South Plains Financial stands poised to capitalize on emerging opportunities and continue its legacy of providing superior financial services to the communities it serves. The company’s diverse loan portfolio, strong liquidity position, and cautious optimism about future growth prospects underscore its resilience in the face of economic uncertainties.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.