8-K: South Plains Financial Reports Solid First Quarter 2024 Results, Net Income Rises

South Plains Financial, Inc. announced a net income of $10.9 million for the first quarter of 2024, an increase compared to both the previous quarter and the same quarter last year.

Summary

• South Plains Financial reported a net income of $10.9 million for the first quarter of 2024, up from $10.3 million in the fourth quarter of 2023 and $9.2 million in the first quarter of 2023.
• Diluted earnings per share increased to $0.64 in the first quarter of 2024, compared to $0.61 in the previous quarter and $0.53 in the same quarter of the previous year.
• The average cost of deposits rose to 241 basis points in the first quarter of 2024, up from 224 basis points in the fourth quarter of 2023 and 136 basis points in the first quarter of 2023.
• Net interest margin was 3.56% for the first quarter of 2024, slightly up from 3.52% in the fourth quarter of 2023.
• Nonperforming assets to total assets decreased to 0.10% at the end of March 2024, down from 0.14% at the end of December 2023 and 0.19% at the end of March 2023.
• The return on average assets was 1.04% annualized for the first quarter of 2024, compared to 0.99% in the previous quarter and 0.95% in the same quarter of the previous year.
• Tangible book value per share was $23.56 as of March 31, 2024, an increase from $23.47 at the end of December 2023 and $20.19 at the end of March 2023.
• The company's capital ratios significantly exceeded the minimum regulatory levels, with a consolidated total risk-based capital ratio of 17.00%, a Common Equity Tier 1 risk-based capital ratio of 12.67%, and a Tier 1 leverage ratio of 11.51%.

Sentiment

Score: 7

Explanation: The sentiment is positive due to improved net income, EPS, and asset quality. However, there are some concerns about rising deposit costs and noninterest expenses, which temper the overall positive outlook.

Positives

• Net income increased to $10.9 million, indicating improved profitability.
• Diluted earnings per share rose to $0.64, reflecting higher earnings per share for investors.
• The net interest margin improved to 3.56%, suggesting better management of interest-earning assets and liabilities.
• Nonperforming assets to total assets decreased to 0.10%, indicating improved asset quality.
• Tangible book value per share increased to $23.56, enhancing shareholder value.
• The company's capital ratios are well above regulatory minimums, demonstrating financial strength and stability.
• The average yield on loans increased to 6.53%, indicating better returns on lending activities.
• The company experienced modest deposit growth, showing a stable deposit base.
• The company has $1.75 billion of available borrowing capacity, providing ample liquidity.

Negatives

• The average cost of deposits increased to 241 basis points, indicating higher funding costs.
• Noninterest expense increased by $1.3 million compared to the previous quarter, primarily due to higher personnel costs.
• The provision for credit losses increased to $830 thousand, indicating a potential increase in loan defaults.
• Net charge-offs to average loans outstanding increased to 0.13% annualized, suggesting a slight deterioration in loan quality.

Risks

• The company faces increased competition for deposits, which could further increase funding costs.
• Changes in market interest rates could impact the company's net interest income.
• The company is exposed to potential economic downturns in the United States and its market areas.
• There are risks associated with cyber incidents and other operational disruptions.
• The company is subject to regulatory changes and potential litigation.

Future Outlook

The company believes its community-based deposit franchise provides adequate liquidity to fund loan growth as it moves through the year and expects to see net interest margin stabilize.

Management Comments

• Curtis Griffith, South Plains Chairman and Chief Executive Officer, stated he is pleased with the first quarter results and that they are starting to see net interest margin stabilize.
• Management noted that loan production was strong, though offset by seasonal agricultural paydowns and early loan payoffs.
• Management stated they continue to aggressively manage the credit quality of their loan portfolio.
• Management believes their community-based deposit franchise remains a competitive advantage and provides adequate liquidity.

Industry Context

The results reflect the current banking environment with challenges in deposit competition and interest rate management, while also showing resilience in loan growth and asset quality. The company's focus on community banking and strong capital position are key differentiators.

Comparison to Industry Standards

• South Plains Financial's net interest margin of 3.56% is within the range of regional banks, but slightly lower than some larger national banks that may have more diversified funding sources.
• The company's nonperforming assets to total assets ratio of 0.10% is better than the industry average, indicating strong credit quality management compared to peers such as First Financial Bankshares (FFIN) and Prosperity Bancshares (PB).
• The return on average assets of 1.04% is competitive with other regional banks, but lower than some high-performing institutions like Signature Bank (SBNY) before its collapse, which had ROA's above 1.5%.
• The tangible book value per share of $23.56 is a key metric for valuation, and it is important to compare this to similar banks in Texas and the Southwest region, such as Texas Capital Bancshares (TCBI) and Cullen/Frost Bankers (CFR).
• The company's capital ratios are significantly above regulatory minimums, which is a positive sign compared to some banks that have faced capital adequacy concerns in the recent banking turmoil.

Stakeholder Impact

• Shareholders will benefit from increased earnings per share and tangible book value.
• Employees may see increased incentive-based compensation.
• Customers will continue to receive a wide range of financial services.
• The company's strong capital position provides stability for all stakeholders.

Next Steps

• The company will host a conference call to discuss the first quarter 2024 financial results.
• The company will continue to manage expenses to drive profitability.
• The company will continue to focus on growing core deposits and managing the loan portfolio.

Key Dates

Keywords

financial results, net income, earnings per share, net interest margin, deposits, loans, asset quality, capital ratios, banking, South Plains Financial