South Plains Financial, Inc.

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Inc. Second Quarter 2021 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. Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. We appreciate your participation in our second quarter 2021 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 within two hours of the conclusion of the call until August 10th, 2021. Additionally, a slide deck presentation to complement today's discussion is available on the news and events 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 risk, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statement in our earnings press release that was issued this afternoon and on slide two of the slide deck presentation available on our website. All comments made during today's call are subject to those safe harbor statements. 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. The reconciliation of these non-GAAP measures to the most comparable GAAP measures can also be found in our earnings release and on slide 20 of the slide deck presentation. At this point, I'll turn the call over to Curtis.

Thank you, Steve, and good afternoon. On today's call, I will briefly review the highlights of our second quarter 2021 results and our strategy to grow the bank. Corey will discuss our initiatives designed to accelerate organic loan growth in more detail, and Steve will conclude with a more granular review of our second quarter 2021 financial results. We will then open the call for your questions. To start, there are five points that I would like you to take away from today's call and our second quarter results. First, economic activity continues to accelerate across Texas as the environment has continued to normalize. That said, we are closely monitoring the current environment given the rise in cases due to the Delta variant and are prepared to quickly make any necessary adjustments to protect our employees and customers. Second, While we are benefiting from this improved economic activity, we are also focused on expanding our loan portfolio and are in the process of actively hiring bankers across all of our markets, but with a particular focus on our major metropolitan markets of Dallas and Houston. Third, as we put our excess liquidity to work in organic loan growth, we expect to see margins expand, earnings growth accelerate, and our returns improve. Fourth, as we increase our loans, we will maintain our conservative underwriting standards as we will never sacrifice credit quality for growth. Lastly, we will continue to pursue a thoughtful capital allocation strategy focused on share buybacks, maintaining and growing our dividend over time, and tactical M&A. Turning to our second quarter 2021 results on slide four. We reported net income of $13.7 million or 74 cents per diluted common share, which compares to net income of $5.6 million or 31 cents per diluted common share that we reported in the second quarter of 2020. Pre-tax, pre-provision income for the second quarter of 2021 was $15.1 million, which compares to $19 million in the first quarter of 2021 and $20.1 million in last year's second quarter. We had a negative provision for loan loss in the second quarter of 2021 of $2 million, which compares to a $13.1 million provision expense in the second quarter of 2020. Our reserve release this quarter reflects the credit improvement that we are experiencing in our portfolio and the general improvement of and our expectation for continued strengthening in the overall economy. In particular, we are seeing robust activity in corporate expansion in West Texas, which is driving job growth and the housing market, while the rebound in energy prices is leading to an acceleration of drilling activity and improved economic momentum in the Permian Basin. This can also be seen in our loan portfolio, where we are generally seeing positive credit migrations and an increase in our customers' demand for credit, as our loan pipeline is now at a three year high. These trends provide confidence as we work to maintain loan growth through the second half of the year to offset PPP loan forgiveness. We are hopeful that we can deliver mid single digit loan growth in 2021 and that an additional portion of our reserve for loan losses can be returned to capital to support loan growth. While we believe the market backdrop is very healthy, We are also working to expand our loan originations by hiring experienced bankers across all of our markets with a focus on Dallas and Houston, where we are targeting customers looking for our relationship-based approach to banking and our superior products and services. The opportunity to continue to generate low-cost deposits in our smaller non-metropolitan markets and redeploy our excess liquidity into our larger urban markets is a key component in our strategy for organic growth. For the second quarter of 2021, our cost of funds was 27 basis points as compared to 29 basis points in the first quarter of 2021. This provides a competitive advantage as we establish a stronger presence in our metropolitan markets and work to gain market share. We currently have significant excess liquidity to deploy as our loan to deposit ratio at the end of the second quarter was 73%. We have made good progress hiring experienced bankers and are well on our way to achieving our goal of growing our lending team by more than 30% over the next two years. Corey will discuss this in more detail in a moment. As we strive to accelerate our organic loan growth, we will also continue to employ a thoughtful capital allocation strategy to create value for our shareholders. We continue our share repurchase program and expect to deliver a consistent return of capital through our quarterly dividend. During the second quarter of 2021, we repurchased approximately 39,000 common shares under our $10 million share repurchase program. Additionally, our Board of Directors authorized a quarterly dividend of $0.09 per share this past week. which is up from the last quarterly dividend of $0.07 per share in April of this year. This will be our 10th consecutive quarterly dividend and will be paid on August 16, 2021 to shareholders of record on August 2, 2021. We believe that we have the capital to pursue both our stock repurchase program and strategic M&A opportunities. We have the capacity to acquire a bank that either opens a new market opportunity for us or consolidates our position in an existing market. We expect M&A activity to accelerate in West Texas over the next year. We are focused on finding a bank with a similar culture that is well-suited to complement and add significant value to our current structure. We are looking at banks with good deposit franchises in rural markets where there could be leadership changes over the next few years. As mentioned previously, we will then redeploy those excess deposits into our metropolitan markets as we continue to expand our organic loan platform. We believe there are more than 20 potential targets in West Texas as we focus in on banks with assets in the $250 million to $1 billion range. Importantly, we will not do a deal just to do a deal. We are price sensitive and cognizant of market expectations on valuation. As we grow the bank, we are also focused on improving our operations by further utilizing technology. The investments that we have made over the years in our digital platforms positioned the bank for success through the COVID-19 pandemic. Looking forward, we see further opportunities to enhance our efficiency and are starting two initiatives as part of our technology roadmap. The first is a refocusing of our advertising to digital media. After much thought and analysis, we have decided to become more focused on targeted digital marketing. We believe this medium will yield more qualified leads and ultimately new business opportunities while being more cost effective. As we transition our marketing dollars to digital media, we expect to generate a strong internal rate of return on the spend. As part of our long-range IT plan, We are also initiating a process to move our data center, computing, and data storage to the cloud, as we believe this will provide increased security, more seamless maintenance, and lower costs. We believe this is the right time to pursue this migration and expect a modestly higher run rate for our quarterly expenses over the near term as we execute on these two technology initiatives. To conclude, I'm very pleased with our second quarter results as we continue to focus on growing the value of the bank, and I'm very proud of the success that we've achieved. Over the last year, we've grown tangible book value per share by 19.8% to $20.43 and improved our annualized return on average assets by 82 basis points to 1.46%, both as of June 30, 2021. Our local economies are robust, and we are making strong progress growing our banking team, which positions South Plains Financial solidly for the future. Now, let me turn the call over to Corey.