South Plains Financial, Inc.

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Inc. Fourth Quarter and Full Year 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 fourth quarter and full year 2021 earnings conference call. With me here today are Curtis Griffith, our Chairman and Chief Executive Officer, and Corey Newsom, our President. As a reminder, a replay of this call will be available on our website within two hours of the conclusion of the call. until February 10, 2022. 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 risks, 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. Reconciliation of these non-GAAP measures to the most comparable GAAP measures can also be found in our earnings release and on slide 19 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 fourth quarter and full year 2021 results. Corey will provide an update on our efforts to expand our lending team, which is contributing to our strong organic loan growth, as well as discuss how we are managing the expected decline in our mortgage business as we focus on growing the company through the cycle. Steve will then conclude with a more detailed review of our fourth quarter 2021 results. Looking back on 2021, we believe our team delivered another year of strong financial results, that exceeded our expectations and has firmly positioned South Plains for continued success in the year ahead. The culture that we have fostered is contributing to our results and can be seen in our employees' commitment to our customers. We believe our culture also differentiates South Plains in our local markets and is a key factor in our ability to recruit high-quality talent to our team. Another differentiating factor is the significant employee and insider ownership of the company, which stood at almost 40% of shares outstanding at year end. We are all highly incentivized to do what is right for our customers, the company, and our shareholders, and I would like to thank our employees for their hard work. I continue to be very proud of their efforts. Turning to our results, there are five key points that I would like you to take away this afternoon. First, we grew our loan portfolio 9.7% year over year in 2021, exceeding our goal of mid single digit growth. Strength in our local Texas markets combined with the successful execution of our plan to grow our lending team contributed to these results. Second, we are approximately halfway to our goal of adding 20 new lenders to our 60 lender team and remain pleased with the quality of bankers that we continue to recruit and hire. Third, as expected, we have started to experience a decline in our mortgage banking revenues in the fourth quarter of 2021, which we believe will continue through the upcoming year. Fourth, we have significant excess liquidity to deploy into attractive yielding organic loans as we continue to benefit from strong economic growth, market share gains, and the expansion of our lending teams. We believe this latent earnings power will more than offset the decline in our mortgage banking revenues over the next two to three years. Lastly, we will remain disciplined on credit as we continue to grow Citibank and are very pleased with the performance of our enterprise risk management system, which enabled our team to effectively manage the credit of our loan portfolio through the COVID-19 pandemic. Turning to our fourth quarter 2021 results on slide four. we reported net income of $14.6 million or 79 cents per diluted common share, which compares to net income of $15.2 million or 82 cents per diluted common share in the third quarter of 2021, and $15.9 million or 87 cents per diluted common share in the fourth quarter of 2020. Turning to our loan portfolio, we typically experience softer trends during the fourth quarter given seasonal paydowns in our agricultural loan portfolio. That said, we also continue to receive SBA forgiveness and repayments of PPP loans, as well as the early payoff of two hotel loans and a large classified commercial credit in the fourth quarter of 2021. Taken together, this proved to be a $65 million headwind to loan growth, which we were able to overcome with strong organic loan growth during the fourth quarter of 2021. As Corey will touch on, we believe our loan pipelines remain at healthy levels given strong economic growth in our attractive Texas markets combined with our newly hired lenders who are beginning to bring new business to Citibank and grow their loan portfolios. This provides confidence in our outlook for achieving mid to high single-digit loan growth in the year ahead. Importantly, we have ample liquidity to fund this growth as our loan to deposit ratio was 73% at the end of the fourth quarter of 2021, which is a decline from the third quarter's level of 76% given the strong deposit growth that we experienced in the quarter. That said, our goal remains the same. We want to deploy our excess liquidity into attractive loans across our markets and ultimately drive that ratio up into the mid to high 80s over time. As we do that, we expect to deliver improved profitability, earnings growth, and returns. It is hard to predict how earnings will evolve as net interest income grows and mortgage banking fee income normalizes. To help frame this for the investment community, we estimate that excess net mortgage income that we are earning equates to approximately 35 to 50 cents per share of earnings power, which assumes mortgage banking revenues of 10 to 15 percent of total revenue going forward as compared to 23 percent in the fourth quarter of 2021 and 26 percent in the third quarter of 2021 respectively we believe this is manageable and see the expansion of our commercial lending team as a critical component to successfully navigating this transition turning to our full year 2021 results I am very proud of the success that we achieved again this year as we grew assets 8.4% year over year to $3.9 billion, grew diluted earnings per share 28% year over year to $3.17 per share, increased tangible book value per share 13% year over year to $21.51, and expanded our return on average assets 25 basis points to 1.56% for 2021. One of our short-term goals when we went public was to grow the company while also improving our returns as we pursue our longer-term goal of achieving returns in line or better than our peers. Our results this year once again demonstrate that we are firmly on course. Looking forward, we believe the best way to stay on this course and achieve our goals is to remain focused on organic growth. As a result, our capital allocation strategy will be centered on maintaining and growing our dividend over time while strategically utilizing our share repurchase program. Along these lines, our Board of Directors authorized a quarterly dividend of 11 cents per share this past week, which is an increase of 2 cents per share over the last quarterly dividend that we paid in November of 2021. This will be our 12th consecutive quarterly dividend and will be paid on February 14, 2022 to shareholders of record on January 31, 2022. We also repurchased approximately 120,000 shares during the fourth quarter of 2021 under our share repurchase programs. Now let me turn the call over to Corey.