Chronicling the Company's Growth Journey
South Plains Financial traces its origins back to 1941, when First State Bank of Morton, a community bank with approximately $1 million in total assets, was founded. In 1962, the bank was sold to new management, including J.K. Griffith, the father of the company's current Chairman and Chief Executive Officer, Curtis C. Griffith. Under Mr. Griffith's leadership, the bank transformed from a small-town institution with $30 million in total assets and a single branch location into one of the largest community banks in West Texas.
The company's growth trajectory accelerated in the 1990s, with the acquisition of South Plains National Bank of Levelland, Texas in 1991 and the formation of the holding company, South Plains Bank, in 1993. The company further expanded its footprint through the acquisition of City Bank in 1993, which was originally established in Lubbock in 1984. First State Bank of Morton and South Plains Bank were merged into City Bank in 1998 and 1999, respectively. The company's asset base grew to more than $175 million following these acquisitions.
The company's growth strategy continued with the 2019 acquisition of West Texas State Bank, Odessa, Texas, with approximately $430 million in assets, through a merger with City Bank. Today, South Plains Financial operates 25 full-service banking locations across seven geographic markets, the result of six acquisitions, de novo branch establishments, and the formation of a de novo bank in Ruidoso, New Mexico, which was later merged into the Bank. The company also operates 7 loan production offices focused on mortgage loan origination.
Navigating Challenges with Prudence
South Plains Financial's success can be attributed to its unwavering focus on prudent risk management and conservative underwriting practices. The company has weathered various economic cycles and challenges, including the recent inflationary pressures and market volatility, by maintaining a well-diversified loan portfolio and a strong liquidity position.
As of December 31, 2024, the company's loan portfolio was well-balanced, with commercial real estate loans accounting for 40.1%, commercial loans (specialized and general) making up 30.9%, and consumer loans (including 1-4 family residential, auto, and other consumer) comprising 28.9%. This diversification has helped South Plains Financial navigate the changing economic landscape and mitigate concentration risks.
Furthermore, the company's commitment to credit quality is evident in its nonperforming loans ratio of 0.79% as of December 31, 2024, a testament to its disciplined underwriting and proactive risk management practices. The allowance for credit losses, which stood at 1.42% of total loans held for investment, provides a solid buffer against potential credit deterioration.
Adapting to Market Dynamics
South Plains Financial has demonstrated its ability to adapt to changing market conditions, evidenced by its performance during the recent period of elevated interest rates and economic uncertainty. In 2024, the company reported a net interest margin of 3.65%, an increase of 10 basis points from the previous year, as it effectively managed its deposit costs and repriced its loan portfolio.
The company's noninterest income has also been a key contributor to its financial resilience. In 2024, noninterest income accounted for 26% of the bank's total revenue, driven by strong performance in mortgage banking activities and other fee-based services. The company's mortgage servicing rights portfolio, valued at $26.3 million as of December 31, 2024, has provided a stable source of income and helped offset the volatility in mortgage origination volumes.
Financials
South Plains Financial's financial performance reflects its prudent management and adaptability to market conditions. For the fiscal year 2024, the company reported total revenue of $189.30 million, with net income of $49.72 million. Operating cash flow for the year stood at $59.38 million, while free cash flow reached $56.03 million.
In the most recent quarter (Q4 2024), South Plains Financial demonstrated strong performance with revenue of $51.87 million and net income of $16.5 million. The company achieved impressive year-over-year revenue growth of 17.1%, primarily driven by a $3.1 million increase in mortgage banking revenues. This increase was mainly attributed to a $3.5 million rise in the fair value adjustment of mortgage servicing rights.
The company's net interest income for 2024 was $147.1 million, while noninterest income totaled $48.1 million. South Plains Financial's return on average assets was 1.17%, and its return on average equity was 11.75% for the year. The efficiency ratio, which measures noninterest expense as a percentage of the sum of net interest income and noninterest income, was 65.07% in 2024, compared to 61.33% in the prior year.
Liquidity
South Plains Financial maintains a robust liquidity position, which provides flexibility in managing its operations and pursuing growth opportunities. As of December 31, 2024, the company reported cash and cash equivalents of $359.08 million. The debt-to-equity ratio stood at 0.25, indicating a conservative approach to leverage.
The company has access to significant credit facilities, including a Federal Home Loan Bank (FHLB) line of credit with $1.11 billion in available capacity, a Federal Reserve Bank line of credit with $654 million in available capacity, and $140 million in uncollateralized lines of credit with multiple banks. These credit lines provide South Plains Financial with ample liquidity to support its operations and potential growth initiatives.
Prudent Capital Management and Shareholder Returns
South Plains Financial maintains a strong capital position, which provides the flexibility to pursue growth opportunities and support shareholder returns. As of December 31, 2024, the company's common equity Tier 1 capital ratio stood at 13.53%, and its Tier 1 leverage ratio was 12.04%, both well above the regulatory requirements for well-capitalized institutions.
The company's disciplined approach to capital allocation is evident in its shareholder-friendly actions. In 2024, South Plains Financial paid a quarterly cash dividend of $0.15 per share, marking its 23rd consecutive quarterly dividend. Additionally, the company has a $10 million stock repurchase program in place, which provides further flexibility to enhance shareholder value.
Business Overview and Market Presence
South Plains Financial operates as a bank holding company, with its wholly-owned banking subsidiary, City Bank, serving as one of the largest independent banks in West Texas. The company provides a wide range of commercial and consumer financial services to small and medium-sized businesses and individuals in its market areas.
The company's primary business activities include commercial and retail banking. On the commercial side, South Plains Financial offers various loan products, including commercial real estate loans, commercial-specialized loans (such as agricultural production and real estate, energy, and finance/investment/insurance loans), and commercial-general loans. As of December 31, 2024, commercial real estate loans made up 40.1% of the total loan portfolio, while commercial-specialized and commercial-general loans accounted for 12.7% and 18.2%, respectively.
In retail banking, the company provides consumer loans, including 1-4 family residential mortgages, auto loans, and other consumer loans. As of the end of 2024, consumer 1-4 family residential loans comprised 18.5% of the total loan portfolio, auto loans represented 8.3%, and other consumer loans accounted for 2.1%.
South Plains Financial also offers investment, trust, and mortgage services. The company's investment services, provided through The Investment Center at City Bank, include self-directed IRAs, mutual funds, annuities, and other investment products. As of December 31, 2024, the company had $605.7 million in assets under management from its investment services.
The trust services, offered through City Bank Trust, include estate administration, family trust administration, retirement services products, and other trust and wealth management solutions. At the end of 2024, City Bank Trust had $423 million in assets under management.
In terms of mortgage banking, South Plains Financial originates and sells residential mortgage loans, primarily from its branches and loan production offices in Texas and New Mexico. For the year ended December 31, 2024, the company originated $292.6 million in mortgage loans and sold the servicing on approximately 69% of those mortgages. Mortgage banking activities contributed $14.2 million, or 30.0%, of the company's total noninterest income in 2024.
Geographically, South Plains Financial primarily operates in Texas and New Mexico markets, with 79% of deposits in rural markets and 21% in major metropolitan markets of Dallas, Houston, and El Paso.
Industry Trends and Future Outlook
The banking industry in South Plains Financial's markets has experienced modest loan growth, but elevated levels of payoffs and prepayments have presented challenges. Net interest margins have been under pressure due to the rising interest rate environment, but the company has been able to mitigate some of this pressure through effective asset-liability management.
Looking ahead to 2025, South Plains Financial expects to deliver low to mid-single-digit loan growth. The company anticipates its net interest margin to remain stable around the 3.75% level in Q1 2025, with potential for incremental improvement depending on loan growth. Non-interest expense is expected to be more in line with Q3 2024 levels in Q1 2025, as some one-time benefits experienced in Q4 2024 will not recur.
The regulatory environment remains challenging, with increased compliance costs being a notable factor for the industry. However, South Plains Financial's strong capital position and conservative risk management approach position it well to navigate these challenges.
Conclusion
South Plains Financial Inc (SPFI) has built a legacy as a community-focused bank that has successfully navigated the complexities of the banking industry. With its strong capital position, prudent risk management, and adaptable business model, the company is well-positioned to continue its growth trajectory and deliver sustainable value to its shareholders. As the banking landscape evolves, South Plains Financial remains committed to its core principles of prudence, foresight, and community-centric banking, while maintaining the flexibility to capitalize on emerging opportunities in its markets.