UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 Pursuant to Section 13 or 15(d) of

 the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  July 25, 2019

 

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South Plains Financial, Inc.

(Exact name of registrant as specified in its charter)

 

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(806) 792-7101

(Registrant’s telephone number, including area code)

 

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

 

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. ☐

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

South Plains Financial, Inc. Reports Second Quarter 2019 Financial Results

LUBBOCK, Texas, July 25, 2019 (GLOBE NEWSWIRE) – South Plains Financial, Inc. (NASDAQ: SPFI) (“South Plains” or the “Company”), the parent company of City Bank, today reported its results for the quarter ended June 30, 2019.

Subsequent Events

Curtis Griffith, South Plains’ Chairman and Chief Executive Officer, commented, “I am pleased with our second quarter results as we delivered strong earnings and book value growth from the linked quarter as we execute on our strategy of expanding our position as a premier bank.  We achieved this growth by not compromising on costs and will continue to be vigilant on expenses as we work to scale the Bank, leverage our investment in infrastructure, and improve our profitability.  Another highlight in the quarter was the Bank’s credit quality which remains strong as we actively manage our portfolio to remediate any potential challenges.  Importantly, we will remain disciplined on credit and not sacrifice our strict underwriting standards to drive loan growth in a more competitive environment.”

Mr. Griffith continued, “Our decision to go public in May was driven by the significant opportunity that we see to grow South Plains through strategic and disciplined M&A given the fragmented community bank market that exists in our core geographic markets.  In fact, there are more than 160 banks with total assets between $250 million and $1 billion in Texas and New Mexico.  We believe that our longstanding presence in West Texas, our culture of emphasizing employees as our most important asset, and our financial commitment to helping and bettering our communities will give us a significant advantage in making South Plains an acquirer of choice.  Proof of our strategy is evident in our announcement this morning of our acquisition of WTSB in a $76.1 million cash transaction.  WTSB is a $429 million asset bank located in Odessa, Texas which, upon closing, will expand our geographic reach into the attractive Permian Basin.”

Results of Operations, Quarter Ended June 30, 2019

Net Interest Income

Net interest income was $24.8 million for the second quarter of 2019, compared to $23.4 million for the second quarter of 2018 and $24.5 million for the first quarter of 2019.

Interest income was $32.5 million for the second quarter of 2019, compared to $28.4 million for the second quarter of 2018 and $32.0 million for the first quarter of 2019.  Interest and fees on loans increased by $3.0 million from the second quarter of 2018 due to organic growth of $46.9 million in average loans and an increase of 48 basis points in interest rates. The increase from the linked quarter was the result of $33.8 million more in average interest-earnings assets during the second quarter of 2019, offset by a 4 basis point decrease in the interest rates of those assets.

Interest expense was $7.7 million for the second quarter of 2019, compared to $5.0 million for the second quarter of 2018 and $7.5 million for the first quarter of 2019. The increase from the second quarter of 2018 was due to an increase in the rate paid on interest-bearing liabilities of 49 basis points and growth in the deposit base.  The increase from the linked quarter was due to an increase in the rate paid on interest-bearing liabilities of 5 basis points in the second quarter of 2019.  The average cost of deposits were 108 basis points for the second quarter of 2019, representing a 37 basis point increase from the second quarter of 2018 and a 3 basis point increase from the linked quarter.

The net interest margin was 3.88% for the second quarter of 2019, compared to 3.98% for the second quarter of 2018 and 3.93% for the first quarter of 2019.  The decreases from the second quarter of 2018 and the linked quarter were due primarily to the impact of higher interest-bearing liabilities costs, offset by increases in the rates on interest-earning assets.

Noninterest Income and Noninterest Expense

Noninterest income was $13.7 million for the second quarter of 2019, compared to $13.0 million for the second quarter of 2018 and $12.1 million for the first quarter of 2019.  The increase in noninterest income for the second quarter of 2019 compared to the second quarter of 2018 was primarily the result of an increase of $255,000 in mortgage banking activities revenue.  The increase from the linked quarter was primarily the result of an increase of $1.8 million in mortgage banking activities revenue due to $22.2 million more in originations for the second quarter of 2019.

Noninterest expense was $29.9 million for the second quarter of 2019, compared to $28.4 million for the second quarter of 2018 and $30.0 million for the first quarter of 2019. This increase in noninterest expense for the second quarter of 2019 compared to the second quarter of 2018 was primarily driven by $1.2 million in 2019 operating expenses related to the online mortgage and staff acquisition, which closed on November 30, 2018.  The decrease in noninterest expense in second quarter of 2019 compared to the linked quarter was due to a reduction in salaries and employee benefits of $341,000 as we continued to work on operational efficiencies.

Loan Portfolio and Composition

Loans held for investment were $1.94 billion as of June 30, 2019, compared to $1.92 billion as of March 31, 2019 and $1.91 billion as of June 30, 2018.  Loans held for investment increased $20.5 million, or 4.3% annualized, during the second quarter of 2019, compared to the linked quarter, primarily as a result of an increase of $40.4 million in seasonal agricultural production loan fundings.  This growth was offset by two commercial – general relationships, totaling $19.8 million, that paid off during the quarter.  As of June 30, 2019, loans held for investment increased $21.8 million, or 1.1%, from June 30, 2018.  The primary segments of our organic growth for this period were $31.3 million in 1-4 family residential loans and $32.3 million in auto loans.  This growth has been offset by a decline in the commercial – general segment of $43.2 million.  The decline was primarily the result of the payoffs noted above as well as an additional two relationships, totaling $16.0 million, that paid off early in the first quarter of 2019.

Agricultural production loans were $147.7 million at June 30, 2019, compared to $107.3 million at March 31, 2019 and $148.1 million at June 30, 2018.

Deposits and Borrowings

Deposits totaled $2.28 billion as of June 30, 2019, compared to $2.30 billion as of March 31, 2019 and $2.18 billion as of June 30, 2018.  Deposits decreased $23.1 million in the second quarter of 2019 primarily as the result of a planned reduction of $18.7 million in reciprocal deposits.  Deposits increased $98.2 million from June 30, 2018 was the result of the Company’s organic growth.

Noninterest-bearing deposits were $513.4 million as of June 30, 2019, compared to $497.6 million as of March 31, 2019 and $495.3 million as of June 30, 2018.  Noninterest-bearing deposits represented 22.5%, 21.6%, and 22.7% of total deposits as of June 30, 2019, March 31, 2019, and June 30, 2018, respectively.

Asset Quality

The provision for loan losses recorded for the second quarter of 2019 was $875,000, compared to $1.5 million for the second quarter of 2018 and $608,000 for the first quarter of 2019.  The allowance for loan losses to loans held for investment was 1.25% at June 30, 2019, compared to 1.22% at March 31, 2019 and 1.13% at June 30, 2018.

 

The nonperforming assets to total assets ratio as of June 30, 2019 was 0.37%, compared to 0.37% as of March 31, 2019 and 0.70% at June 30, 2018.

 

Annualized net charge-offs were 0.02% for the second quarter of 2019, compared to 0.07% for the first quarter of 2019 and 0.38% for the second quarter of 2018.

 

(1) The Company’s S Corporation revocation was effective May 31, 2018.  Net income, return on average assets, return on average shareholders’ equity and earnings per share for periods prior to the revocation are presented herein as if we had converted to a C Corporation as of January 1, 2018.  The tax adjustment is calculated by adding back its franchise S Corporation tax to net income, and using tax rates for Federal income taxes of 21.0%.  This calculation reflects only the revocation of the Company’s status as an S Corporation and does not give effect to any other transaction.

 

(2) Net interest margin is calculated as the annual net interest income, on a fully tax-equivalent basis, divided by average interest-earning assets.

 

(3) Amounts are presented giving effect to the ESOP Repurchase Right Termination.  See Pro Forma Financial Information below for further details.

 

Conference Call

 

 

 

About South Plains Financial, Inc.

 

South Plains is the bank holding company for City Bank, a Texas chartered bank headquartered in Lubbock, Texas.  City Bank is one of the largest independent banks in West Texas and has additional banking operations in the Dallas and El Paso markets, as well as in the Greater Houston, and College Station Texas markets, and the Ruidoso and Eastern New Mexico markets. South Plains provides a wide range of commercial and consumer financial services to small and medium-sized businesses and individuals in its market areas. Its principal business activities include commercial and retail banking, along with insurance, investment, trust and mortgage services.  Please visit https://www.spfi.bank/investor-relations for more information.

 

Pro Forma Financial Information

 

As a result of the revocation of the Company’s S corporation election, the net income and earnings per share data presented herein may not be comparable for all periods presented herein. As a result, the Company is disclosing pro forma net income, income tax expense, and earnings per share as if the Company’s conversion to a C corporation had occurred as of January 1, 2018.

 

Additionally, prior to the listing of our common stock on the NASDAQ, in accordance with applicable provisions of the Internal Revenue Code of 1986, as amended,, the terms of the South Plains Financial, Inc. Employee Stock Ownership Plan (“ESOP”) provided that ESOP participants had the right, for a specified period of time, to require the Company to repurchase shares of the Company’s common stock that were distributed to them by the ESOP. The shares of common stock held by the ESOP were reflected in the Company’s consolidated balance sheets as a line item called ”ESOP owned shares” appearing between total liabilities and shareholders’ equity.  As a result, the ESOP-owned shares were deducted from shareholders’ equity in the Company’s consolidated balance sheets.  This repurchase right terminated upon the listing of the Company’s common stock on the NASDAQ, which we sometimes refer to as the ESOP Repurchase Right Termination, whereupon our repurchase liability was extinguished and thereafter the ESOP-owned shares are included in shareholders’ equity.

 

Non-GAAP Financial Measures

 

Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with generally accepted accounting principles in the United States (“GAAP”).   These non-GAAP financial measures include Tangible Book Value Per Common Share and Tangible Common Equity to Tangible Assets.  The Company believes these non-GAAP financial measures provide both management and investors a more complete understanding of the Company’s financial position and performance. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore, this presentation may not be comparable to other similarly titled measures as presented by other companies. Reconciliation of non-GAAP financial measures, to GAAP financial measures are provided at the end of this press release.

 

Forward Looking Statements

 

This press release contains forward-looking statements.  These forward-looking statements reflect South Plains’ current views with respect to, among other things, the completion of its acquisition of WTSB and other future events.  Any statements about South Plains’ expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking.  These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases.  South Plains cautions that the forward-looking statements in this press release are based largely on South Plains’ expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond South Plains’ control.  Additional information regarding these risks and uncertainties to which South Plains’ business and future financial performance are subject is contained in South Plains’ Prospectus filed with the U.S. Securities and Exchange Commission (“SEC”), dated May 8, 2019 (“Prospectus”), and other documents South Plains files with the SEC from time to time.  South Plains urges readers of this press release to review the Risk Factors section of that Prospectus and the Risk Factors section of other documents South Plains files with the SEC from time to time.  Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements due to additional risks and uncertainties of which South Plains is not currently aware or which it does not currently view as, but in the future may become, material to its business or operating results.  Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this press release.  Any forward-looking statements presented herein are made only as of the date of this press release, and South Plains does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, new information, the occurrence of unanticipated events, or otherwise, except as required by law.

 

South Plains Financial, Inc.

Consolidated Financial Highlights - (Unaudited)

(Dollars in thousands, except share data)

(1)	- Reflects the ESOP Repurchase Right Termination.

(2)	- Assumes the Company’s S Coporation revocation was effective at the beginning of each period prior to May 31, 2018.  The Federal tax rate used was 35.0% for periods prior to January 1, 2018 and 21.0% for periods after January 1, 2018.

South Plains Financial, Inc.

Average Balances and Yields - (Unaudited)

(Dollars in thousands)

(1)	Average loan balances include nonaccrual loans and loans held for sale.

(2)	Net interest margin is calculated as the annualized net income, on a fully tax-equivalent basis, divided by average interest-earning assets.

South Plains Financial, Inc.

Average Balances and Yields - (Unaudited)

(Dollars in thousands)

(1)	Average loan balances include nonaccrual loans and loans held for sale.

(2)	Net interest margin is calculated as the annualized net income, on a fully tax-equivalent basis, divided by average interest-earning assets.

South Plains Financial, Inc.

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands)

South Plains Financial, Inc.

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands)

South Plains Financial, Inc.

Loan Composition

(Unaudited)

(Dollars in thousands)

South Plains Financial, Inc.

Deposit Composition

(Unaudited)

(Dollars in thousands)

Non-GAAP Financial Measures

 

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry.  However, we also evaluate our performance based on certain additional financial measures discussed in this press release as being non-GAAP financial measures.  We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.  Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

 

The non-GAAP financial measures that we discuss in this press release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.  Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this press release may differ from that of other companies reporting measures with similar names.  It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this press release when comparing such non-GAAP financial measures.

 

Tangible Book Value Per Common Share.  Tangible book value per share is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions.  The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share. We believe that the tangible book value per common share measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets.  Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.

 

As we did not have any goodwill or other intangible assets for the periods presented, our tangible book value per common share for such periods ended was the same as our respective book value per common share.

 

Tangible Common Equity to Tangible Assets.  Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions.  We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization.  The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’ equity to total assets.  We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets.  Goodwill and other intangible assets have the effect of increasing both total shareholders’ equity and assets while not increasing our tangible common equity or tangible assets.

 

As we did not have any goodwill or other intangible assets for the periods presented, our tangible common equity to tangible assets for such periods ended was the same as our respective common shareholders’ equity to total assets.