8-K: South Plains Financial Reports Mixed Results for Q4 and Strong Full-Year 2023 Performance

South Plains Financial reported a decrease in net income for the fourth quarter of 2023 compared to the previous quarter, but showed strong growth for the full year.

Summary

• South Plains Financial, Inc. announced its financial results for the fourth quarter and full year ended December 31, 2023.
• Net income for the fourth quarter was $10.3 million, down from $13.5 million in the third quarter of 2023 and $12.6 million in the fourth quarter of 2022.
• Diluted earnings per share for the fourth quarter were $0.61, compared to $0.78 in the previous quarter and $0.71 in the same quarter of the previous year.
• The average cost of deposits increased to 224 basis points in Q4 2023, up from 207 basis points in Q3 2023 and 97 basis points in Q4 2022.
• Net interest margin remained flat at 3.52% for the fourth quarter of 2023, the same as the third quarter of 2023.
• Loans held for investment grew by $20.6 million, or 2.8% annualized, during the fourth quarter.
• Nonperforming assets to total assets were 0.14% at the end of 2023, compared to 0.12% at the end of the previous quarter.
• Return on average assets for the fourth quarter was 0.99% annualized, down from 1.27% in the third quarter of 2023.
• Tangible book value per share was $23.47 as of December 31, 2023, up from $21.07 as of September 30, 2023.
• For the full year 2023, total assets reached $4.20 billion, compared to $3.94 billion in 2022.
• Full-year net income was $62.7 million, up from $58.2 million in 2022.
• Diluted earnings per share for the full year were $3.62, compared to $3.23 in 2022.
• Loans held for investment grew by $266.1 million, or 9.7%, during 2023.
• The company sold its subsidiary, Windmark Insurance Agency, Inc., in the second quarter of 2023 for $36.1 million, resulting in a net gain of $22.9 million.
• A $15 million stock repurchase program was completed in 2023, with 686 thousand shares repurchased.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong full-year results and strategic actions, but tempered by a weaker fourth quarter and increasing deposit costs.

Positives

• Full-year net income increased to $62.7 million in 2023, up from $58.2 million in 2022.
• Diluted earnings per share for the full year increased to $3.62 in 2023, up from $3.23 in 2022.
• Loans held for investment grew by 9.7% during 2023, indicating strong lending activity.
• Tangible book value per share increased to $23.47 at the end of 2023, up from $19.57 at the end of 2022.
• The company successfully sold Windmark Insurance Agency, generating a net gain of $22.9 million.
• The company completed a $15 million stock repurchase program, indicating management's belief in the company's value.
• The company's capital ratios significantly exceeded the minimum regulatory levels.

Negatives

• Net income for the fourth quarter of 2023 decreased to $10.3 million, down from $13.5 million in the previous quarter.
• Diluted earnings per share for the fourth quarter decreased to $0.61, down from $0.78 in the previous quarter.
• The average cost of deposits increased to 224 basis points in the fourth quarter, indicating higher funding costs.
• Noninterest income decreased in the fourth quarter due to a reduction in mortgage banking revenues and the sale of Windmark.
• Net interest income decreased slightly in the fourth quarter compared to the third quarter.

Risks

• The company faces risks related to general economic conditions, potential recession, and uncertainty in the banking industry.
• Increased competition for deposits and changes in customer behavior could impact the company's performance.
• Changes in market interest rates and the persistence of inflation could affect the company's profitability.
• The company is exposed to risks related to cyber incidents, severe weather, and regulatory changes.
• Declines in housing prices and commercial real estate prices could negatively impact the loan portfolio.
• The company faces risks related to the development and implementation of emerging technologies.

Future Outlook

The company's management believes they are well-positioned to take advantage of opportunities to drive growth and shareholder value, despite industry challenges. They will continue to manage expenses to drive profitability.

Management Comments

• Curtis Griffith, South Plains Chairman and CEO, stated that the company delivered strong results despite industry challenges, demonstrating the strength of their franchise.
• Mr. Griffith highlighted the 9.7% loan growth for the full year, emphasizing the strength of the Texas economy and their efforts to expand their lending platform.
• Management believes that the company's shares have traded below intrinsic value and they have been aggressive in repurchasing stock.

Industry Context

The results reflect the challenges faced by the banking industry, including increased deposit costs and a changing interest rate environment. The company's focus on loan growth and strategic asset sales is consistent with efforts to navigate these challenges.

Comparison to Industry Standards

• South Plains Financial's loan growth of 9.7% for the year is strong compared to the industry average, which has seen slower growth due to economic uncertainty.
• The company's net interest margin of 3.52% is within the range of regional banks, but the increasing cost of deposits is a concern shared across the industry.
• The sale of Windmark Insurance Agency for $36.1 million is a strategic move similar to other banks divesting non-core assets to focus on core banking activities.
• The company's capital ratios are well above regulatory minimums, which is a positive sign compared to some banks facing capital adequacy concerns.
• The repurchase of 686 thousand shares in 2023 is a common strategy among banks that believe their stock is undervalued, similar to actions taken by other regional banks.

Stakeholder Impact

• Shareholders will be impacted by the decrease in fourth-quarter earnings, but positively by the full-year results and stock repurchase program.
• Employees may be affected by cost management efforts, but the company emphasizes a positive work environment.
• Customers will continue to receive financial services from the bank.
• The company's performance will impact its relationships with suppliers and creditors.

Next Steps

• The company will continue to focus on organic loan growth, particularly in its major metropolitan markets.
• Management will continue to manage expenses to drive profitability.
• The company will host a conference call to discuss the financial results.

Key Dates

Keywords

financial results, net income, earnings per share, loans, deposits, interest margin, asset quality, capital ratios, stock repurchase, bank, financial services