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):  April 27, 2021

South Plains Financial, Inc.

(Exact name of registrant as specified in its charter)

(806) 792-7101

(Registrant’s telephone number, including area code)

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:

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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Item 2.02

Results of Operations and Financial Condition.

Item 7.01

Regulation FD Disclosure.

Item 9.01

Financial Statements and Exhibits.

(d)

Exhibits.

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 First Quarter 2021 Financial Results

LUBBOCK, Texas, April 27, 2021 (GLOBE NEWSWIRE) – South Plains Financial, Inc. (NASDAQ:SPFI) (“South Plains” or the “Company”), the parent company of City Bank (“City Bank” or the “Bank”), today reported its financial results for the quarter ended March 31, 2021.

First Quarter 2021 Highlights

Curtis Griffith, South Plains’ Chairman and Chief Executive Officer, commented, “Through the first quarter of 2021 our local Texas markets continued to recover as the pace of business has started to accelerate, real estate volumes remained strong, and the price of oil continued to rise. We are seeing these improved trends in our customers’ demand for credit and expect loan growth to reaccelerate to a low single digit rate through 2021, excluding Paycheck Protection Program (“PPP”) loans, before returning to mid-single digit growth in 2022 as we continue to expand in our metropolitan markets of Dallas-Fort Worth, Houston and El Paso. Importantly, we will remain disciplined and will not sacrifice our credit standards as we grow the Bank. This discipline has served us well during the COVID-19 pandemic, as can be seen in the credit metrics of our loan portfolio, as our active loan modifications declined to 2.1% of our loan portfolio in the first quarter of 2021 from 2.9% in the fourth quarter of 2020. We remain confident in the credit quality of our loan portfolio and the reserves for loan losses that we have.”

Mr. Griffith continued, “We believe the Bank’s financial position is strong as we have remained disciplined on core expenses as our mortgage volumes have grown, maintained strong liquidity, and are implementing a thoughtful capital allocation strategy to ensure a steady return of capital to our shareholders. During the first quarter of 2021, we continued to repurchase shares under our $10 million share repurchase program and last week our board of directors authorized a 40% increase in our quarterly dividend to $0.07 per share. We also remain committed to our employees, customers and the communities that we serve. Along these lines, we launched our first corporate sustainability report in February 2021 which outlines our commitment to a diverse workforce and board of directors, our goal to reduce our carbon footprint, and our ongoing support to our local communities through increasing employee and Bank engagement. We understand that this is a journey and are excited with the many ways ahead where we can make a positive impact.”

Results of Operations, Quarter Ended March 31, 2021

Net Interest Income

Net interest income was $29.5 million for the first quarter of 2021, compared to $30.4 million for the fourth quarter of 2020 and $30.2 million for the first quarter of 2020. The net interest margin was 3.52% for the first quarter of 2021, compared to 3.64% for the fourth quarter of 2020 and 4.13% for the first quarter of 2020. The average yield on loans was 5.07% for the first quarter of 2021, compared to 5.10% for the fourth quarter of 2020 and 5.76% for the first quarter of 2020. The average cost of deposits was 29 basis points for the first quarter of 2021, representing a two basis point decrease from the fourth quarter of 2020 and a 36 basis point decrease from the first quarter of 2020.

Interest income was $33.0 million for the first quarter of 2021, compared to $34.0 million for the fourth quarter of 2020 and $35.7 million for the first quarter of 2020. Interest income decreased $1.0 million in the first quarter of 2021 from the fourth quarter of 2020 due to lower loan rates and less purchase discount accretion, partially offset by additional fees on Small Business Administration (“SBA”) PPP loans. Interest income decreased by $2.8 million from the first quarter of 2020 primarily due to lower interest rates on loans, securities, and other interest-earning assets, partially offset by growth in average loans, principally from our origination of PPP loans. During the first quarter of 2021, the Company recognized $2.5 million in PPP related SBA fees. At March 31, 2021, there was $5.1 million of deferred fees that have not been accreted to income, the majority of which are expected to be recognized as PPP loans continue to be forgiven by the SBA over the next several quarters.

Interest expense was $3.4 million for the first quarter of 2021, compared to $3.6 million for the fourth quarter of 2020 and $5.5 million for the first quarter of 2020. The decrease in interest expense from the fourth quarter of 2020 was primarily due to lower interest rates paid on interest-bearing deposits, partially offset by growth in average interest-bearing liabilities. The decrease from the first quarter of 2020 was primarily due to lower interest rates paid on interest-bearing liabilities, partially offset by growth in average interest-bearing liabilities. The increase in average interest-bearing liabilities was largely due to growth in deposits and the issuance of $50 million in subordinated notes in September 2020.

Noninterest Income and Noninterest Expense

Noninterest income was $26.5 million for the first quarter of 2021, compared to $26.2 million for the fourth quarter of 2020 and $18.9 million for the first quarter of 2020. The increase from the fourth quarter of 2020 was primarily due to a $1.3 million positive fair value adjustment to the Company’s mortgage servicing rights and a decrease of $1.0 million in income from insurance activities, due to typical seasonality for insurance. The increase in noninterest income for the first quarter of 2021 as compared to the first quarter of 2020 was primarily due to growth of $10.1 million in mortgage banking activities revenue as a result of an additional $219.5 million in mortgage loan originations and a $1.3 million increase in the fair value of the Company’s mortgage servicing rights. This increase was partially offset by a gain on sale of securities of $2.3 million in the first quarter of 2020.

Noninterest expense was $37.1 million for the first quarter of 2021, compared to $36.5 million for the fourth quarter of 2020 and $34.0 million for the first quarter of 2020. The increase from the fourth quarter of 2020 was primarily the result of an increase of $1.2 million in personnel expense related to higher health insurance costs and a change to the lender incentive compensation plan. This increase was partially offset by the decrease of $331 thousand in marketing and business development expense after it had been elevated for the Company’s Permian Basin branches in the fourth quarter of 2020. The increase in noninterest expense for the first quarter of 2021 as compared to the first quarter of 2020 was primarily driven by a $3.5 million increase in personnel expense. This increase was predominantly related to an additional $3.0 million in commissions paid on the higher volume of mortgage loan originations and a rise of $1.0 million in salary and other personnel expenses to support mortgage activities. There was a reduction in other noninterest expenses of $658 thousand during the first quarter of 2021, primarily due to $331 thousand in data conversion expenses and $300 thousand in computer equipment purchased in connection with upgrading the equipment at branches acquired by the Company in November 2019 through the Company’s acquisition of West Texas State Bank as well as at existing branches incurred during the first quarter of 2020.

Loan Portfolio and Composition

Loans held for investment were $2.24 billion as of March 31, 2021, compared to $2.22 billion as of December 31, 2020 and $2.11 billion as of March 31, 2020. The $21.1 million increase during the first quarter of 2021 as compared to the fourth quarter of 2020 was primarily the result of organic net growth of $46.5 million, partially offset by seasonal repayments of $25.4 million in agricultural operating loans. Additionally, there was a net increase of $3.5 million in PPP loans as the Company funded $77.6 million in new PPP loans, partially offset by payments of $74.1 million on PPP loans, during the first quarter of 2021. As of March 31, 2021, loans held for investment increased $133.9 million from March 31, 2020, largely attributable to outstanding PPP loans of $173.5 million as of March 31, 2021, partially offset by the slower loan demand and accelerated repayments experienced during 2020.

Agricultural production loans were $80.5 million as of March 31, 2021, compared to $105.9 million as of December 31, 2020 and $96.8 million as of March 31, 2020. The decrease from the fourth quarter of 2020 is due to typical seasonal repayments on these agricultural production loans.

Deposits and Borrowings

Deposits totaled $3.16 billion as of March 31, 2021, compared to $2.97 billion as of December 31, 2020 and $2.67 billion as of March 31, 2020. Deposits increased $30.5 million, or 1.0%, in the first quarter of 2021 from December 31, 2020. As of March 31, 2021, deposits increased $277.5 million, or 10.3%, from March 31, 2020. The increase in deposits since March 31, 2020 is primarily a result of organic growth as well as existing customers depositing funds received from PPP loan advances, stimulus checks, and generally maintaining higher liquidity in response to the ongoing COVID-19 pandemic.

Noninterest-bearing deposits were $962.2 million as of March 31, 2021, compared to $917.3 million as of December 31, 2020 and $740.9 million as of March 31, 2020. Noninterest-bearing deposits represented 30.5% of total deposits as of March 31, 2021. The change in noninterest-bearing deposit balances at March 31, 2021 compared to December 31, 2020 was an increase of $181.3 million, or 6.1%. The change in noninterest-bearing deposit balances at March 31, 2021 compared to March 31, 2020 was an increase of $489.8 million, or 18.4%. The changes from both compared periods is primarily a result of organic growth as well as existing customers increasing their balances.

The Bank prepaid $50.0 million of advances from the Federal Home Loan Bank of Dallas in March 2021 and there was no related prepayment fee.

Asset Quality

As part of the Bank’s efforts to support its customers and protect the Bank as a result of the COVID-19 pandemic, the Bank has provided borrowers relief by offering varying forms of loan modifications including 90-day payment deferrals, 6-month interest only terms, or in certain select cases periods of longer than 6 months of interest only. As of March 31, 2021, total active loan modifications attributed to COVID-19 were $46.9 million, or 2.1% of the Company’s loan portfolio, down from $64.1 million, or 2.9% of the Company’s loan portfolio, at December 31, 2020. Approximately 95% of these active modified loans at March 31, 2021 are in the hotel portfolio.

The provision for loan losses recorded for the first quarter of 2021 was $89 thousand compared to $141 thousand for the fourth quarter of 2020 and $6.2 million for the first quarter of 2020. The decrease from the first quarter of 2020 is primarily due to the general improvement in the economy, a decline in the amount of loans that are actively under a modification, and a decrease in outstanding loan balances. There is continued uncertainty from the ongoing COVID-19 pandemic and the full extent of the impact on the economy and the Bank’s customers remains unknown at this time. Accordingly, additional provisions for loan losses may be necessary in future periods.

The allowance for loan losses to loans held for investment was 2.01% as of March 31, 2021, compared to 2.05% as of December 31, 2020 and 1.38% as of March 31, 2020. The allowance for loan losses to non-PPP loans held for investment was 2.18% as of March 31, 2021.

The nonperforming assets to total assets ratio as of March 31, 2021 was 0.42%, compared to 0.45% as of December 31, 2020 and 0.28% at March 31, 2020. Annualized net charge-offs were 0.11% for the first quarter of 2021, compared to 0.11% for the fourth quarter of 2020 and 0.25% for the first quarter of 2020.

Conference Call

South Plains will host a conference call to discuss its first quarter 2021 financial results today, April 27, 2021 at 5:00 p.m., Eastern Time. Investors and analysts interested in participating in the call are invited to dial 1-877-407-9716 (international callers please dial 1-201-493-6779) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call and conference materials will be available on the Company’s website at https://www.spfi.bank/news-events/events.

A replay of the conference call will be available within two hours of the conclusion of the call and can be accessed on the investor section of the Company’s website as well as by dialing 1-844-512-2921 (international callers please dial 1-412-317-6671). The pin to access the telephone replay is 13718209. The replay will be available until May 11, 2021.

About South Plains Financial, Inc.

South Plains is the bank holding company for City Bank, a Texas state-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, El Paso, Greater Houston, the Permian Basin, and College Station, Texas markets, and the Ruidoso, New Mexico market. 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 for more information.

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, Tangible Common Equity to Tangible Assets, Adjusted Efficiency Ratio, and Pre-Tax, Pre-Provision Income. 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.

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. 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.

A reconciliation of non-GAAP financial measures to GAAP financial measures is provided at the end of this press release.

Available Information

The Company routinely posts important information for investors on its web site (under www.spfi.bank and, more specifically, under the News & Events tab at www.spfi.bank/news-events/press-releases). The Company intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD (Fair Disclosure) promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, investors should monitor the Company’s web site, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Company’s web site is not incorporated by reference into, and is not a part of, this document.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect South Plains’ current views with respect to, among other things, the ongoing COVID-19 pandemic 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. Factors that could cause such changes include, but are not limited to, general economic conditions, the extent of the impact of the COVID-19 pandemic on our customers, changes in interest rates, regulatory considerations, competition and market expansion opportunities, changes in non-interest expenditures or in the anticipated benefits of such expenditures, and changes in applicable laws and regulations. Additional information regarding these risks and uncertainties to which South Plains’ business and future financial performance are subject is contained in South Plains’ most recent Annual Report on Form 10-K on file with the SEC, 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 our most recent Annual Report on Form 10-K, as well as the “Risk Factors” section of other documents South Plains files or furnishes with the SEC from time to time, which are available on the SEC’s website, www.sec.gov. 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. All forward-looking statements, express or implied, included in the press release are qualified in their entirety by this cautionary statement.

Source: South Plains Financial, Inc.

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