South Plains Financial, Inc.

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial fourth quarter and year-end 2020 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Steven Crockett, Chief Financial Officer of South Plains Financial. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. We appreciate your participation in our fourth quarter and year-end 2020 earnings conference call. With me here today are Curtis Griffith, our chairman and chief executive officer, Corey Newsome, our president, and Brent Bates, Citibank's chief credit officer. As a reminder, a replay of this call will be available through February 10th, 2021. Additionally, a slide deck to complement today's discussion is available on the investor section of our website. Before we begin, Let me remind everyone that this call may contain forward-looking statements and are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statement beginning on page four of our earnings press release and on slide two of the presentation. All comments made during today's call are subject to that safe harbor statement. Any forward-looking statements presented herein are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. At this point, I'll turn the call over to Curtis.

Thank you, Steve, and good afternoon. On today's call, I will provide a high-level review of our results and the success that we achieved growing the bank over the past year. Corey will discuss the continued improvement that we have experienced in our loan portfolio as our proactive approach to managing credit this cycle is yielding positive results. Corey will also touch upon the investments that we have made to drive organic growth and our outlook for the year ahead. Steve will conclude with a more detailed review of our fourth quarter and year-end 2020 financial results, and we will then open the call for your questions. While this past year presented our company with unprecedented challenges as a result of the global COVID-19 pandemic, I could not be more pleased with the performance of our employees and their commitment to both the bank and our customers. Our strong financial results for the fourth quarter and full year 2020 would not have been possible without their tireless efforts. We believe our results are also a reflection of the determined steps that our management team has taken over many years to transform the bank with a goal of delivering returns in line with or better than our peers. This transformation has included the implementation of our enterprise risk management system designed to improve the risk management of the bank and the credit profile of our loan portfolio. A key aspect of our enterprise risk management system is the extensive and ongoing reviews of our loan portfolio, which led to the exit of a number of relationships prior to the downturn caused by the COVID-19 pandemic. We believe this better positioned our portfolio for the cycle and will ultimately serve to mitigate losses. We have also worked to instill a strict expense discipline as we strive to improve our profitability as we grow the bank both organically and through strategic acquisitions. The tangible results of our team's efforts can be seen in our financial results as detailed on slide four. For the fourth quarter of 2020, we reported net income of $15.9 million or 87 cents per diluted common share, which compares to net income of $10.1 million or 55 cents per diluted common share that we reported in the fourth quarter of 2019. Pre-tax, pre-provision income for the fourth quarter of 2020 was $20 million, which compares to $26.9 million in the third quarter of 2020 and $13.7 million in last year's fourth quarter. Our provision for loan loss in the fourth quarter of 2020 was $141,000, which compares to $6.1 million of provision expense recorded in the third quarter of 2020 and $896,000 in the year-ago quarter. The decrease in our provision expense from the third quarter of 2020 is a result of a modest improvement in the economy, a decline in the amount of loans that are actively under a modification, and a decrease in outstanding loan balances. While we continue to take a conservative approach to credit and are maintaining our reserves, we are very pleased with the continued improvement that we are experiencing in our portfolio. As of December 31, 2020, active loan modifications related to the COVID-19 pandemic were 2.9% of our portfolio, which is down from 5.4% as of September 30, 2020. As Corey will discuss, we believe our proactive approach combined with our decision to allow our borrowers to modify their loans to interest-only payments early in the COVID-19 pandemic has positioned the bank to continue to successfully weather the storm while also differentiating Citibank in our local markets. Overall, we believe that our current reserve position is appropriate and are cautiously optimistic that the economy will continue to improve. While we believe our team has managed our loan portfolio extremely well, I am also very proud of our ability to deliver organic growth in a tough environment. This growth enabled our team to scale the bank's infrastructure and improve the return profile of South Plains, which can be seen in our full year 2020 results as outlined on slide five, where we grew assets 11.2% year-over-year to $3.6 billion, grew pre-tax pre-provision income more than 100% year-over-year to $82.2 million, grew earnings 44% year over year to $2.47 per share, increased tangible book value per share 23% year over year to $18.97, improved our efficiency ratio more than 1,200 basis points year over year from 75.3% to 63%, and expanded our return on average assets 27 basis points to 1.31% for 2020 as compared to 1.04% in 2019. We believe these results demonstrate the successful execution of our plan and provide a solid foundation for the year ahead. Turning to capital, we have maintained a disciplined and thoughtful capital allocation strategy, which is designed to provide steady dividends to our shareholders while also supporting the growth of the bank. As part of this strategy, we raised our quarterly dividend more than 65% in the fourth quarter of 2020. And last week, our board of directors approved our seventh consecutive dividend to be paid on February 16th to shareholders of record as of the close of business on February 1st. We also announced the resumption of our $10 million share repurchase program this past November. Importantly, we will remain disciplined as we weigh the opportunities for improving shareholder value and capital redeployment to grow the bank. To support our growth and maintain our capital flexibility during the uncertain economic environment, we issued $50 million of subordinated notes in September of 2020. We believe this issuance will also help to ensure we will have financial flexibility to take advantage of any dislocations in the market which could arise. Strategic M&A has been and continues to be a priority and we are beginning to see activity pick up, which is encouraging. Our team is actively looking for acquisition candidates and believe the current interest rate environment will be increasingly challenging for banks with low loan demand to maintain acceptable returns to their shareholders. We believe we will see motivated sellers through the year ahead and believe we are well positioned to take advantage of those acquisition opportunities given our strong capital base combined with an infrastructure which can handle $5 billion in assets without adding significant incremental expense. To conclude, we remain cautiously optimistic as we look to the year ahead. Our operations continue to run smoothly as we effectively service our customers via our drive-through windows and digital platforms, which have performed very well. Our local economies continue to be resilient in the face of the ongoing COVID-19 pandemic with the pace of business remaining active. We believe that the credit quality of our portfolio is sound and the reserves that we have built are appropriate given what is still an uncertain outlook. Finally, our earnings have been strong and we have built capital through the crisis which positions our team to execute on our initiatives to profitably grow the bank. Now let me turn the call over to Corey.