South Plains Financial, Inc.

Good morning, ladies and gentlemen, and welcome to the South Plains Financial Inc. Second Quarter 2022 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 morning, everyone. We appreciate your participation in our second quarter 2022 earnings conference call. With me here today are Curtis Griffith, our chairman and chief executive officer, and Corey Newsome, our president. A replay of this call will be available on our website within two hours of the conclusion of the call until August 5th, 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 morning 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. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can also be found in our earnings press release and on slide 22 of the slide deck presentation. At this point, I'll turn the call over to Curtis.

Thank you, Steve, and good morning. On today's call, I will review the main drivers to our strong second quarter results highlighted by robust organic loan growth combined with stabilizing mortgage banking revenues, which, taken together, have increased the earnings power of South Plains as we look to the second half of the year. Corey will then discuss our loan growth in more detail as we expand our commercial lending capabilities in our major markets of Dallas, Houston, and El Paso. Steve will then conclude with a more detailed review of our Q2 results. Beginning on slide four, we delivered net income of $15.9 million or 88 cents per diluted common share for the second quarter of 2022, which compares to net income of $14.3 million or 78 cents per diluted common share in the first quarter of 2022 and $13.7 million or 74 cents per diluted common share in the year ago second quarter. Our second quarter 2022 results benefited from 25 cents per share of income received related to four loan credits for the recovery of interest income on previously charged off credits, purchase discount, principal recovery and prepayment penalties. We also had 11 cents per share from SBIC investment income and an increase in the fair value of our mortgage servicing rights. The total of these items was 28 cents per share net of tax. As a reminder, our first quarter 2022 earnings included 28 cents per share net of tax of a positive fair value adjustment to our mortgage servicing rights and a negative provision for loan losses. The strong earnings growth that we experienced in the second quarter was primarily driven by the 20.8% annualized increase in our loan portfolio compared to the first quarter of 2022, as we continue to benefit from our newly hired commercial lenders who are building their loan portfolios more quickly than anticipated, combined with our existing team's continued focus on organic growth. As we enter the third quarter, we've largely completed our initial hiring plan, which we outlined a year ago, and remain very pleased with our lenders' initial success. As Corey will discuss, we have the infrastructure in place in our major markets of Dallas, Houston, and El Paso to support further expansion given the significant growth potential that we believe exists as we strive to redeploy our low-cost deposits into higher-yielding commercial loans. Additionally, we believe that we have ample liquidity to fund our growth given our comfort running the bank at a loan to deposit ratio in the mid to upper 80% range as compared to our 75.3% right at the end of the second quarter. This excess liquidity represents significant earnings potential as we continue to fund higher yielding loans over time. Importantly, our second quarter results mark a clear inflection point as we believe that our mortgage banking revenues have largely moderated to more historical levels. As we have discussed on prior calls, we have expected our mortgage revenues to bottom at 10 to 15% of total bank revenues over time. In the second quarter, our mortgage banking revenue, excluding the large MSR fair value adjustments, was 14% of total bank revenue, which compares to 19% of total bank revenue in the first quarter of 2022, and 23% in the fourth quarter of 2021. Given current mortgage rates, we believe refinance volumes have largely bottomed, while demand for housing and construction remains robust, given the strength of the Texas economy, which continues to enjoy strong in-migration and job growth. Looking to the second half of the year, we expect the financial benefits of our strong second quarter loan growth to continue to flow through to the bottom line as our mortgage revenues stabilize, combined with our plans to continue to redeploy our excess liquidity. Taken together, we believe this will continue to improve the earnings power and value of South Plains, which we believe is not currently reflected in our share price. Given our view that our shares are trading below intrinsic value, we increased the pace of our share repurchases through the second quarter of 2022, having repurchased approximately 257,000 shares as compared to 106,000 shares in the first quarter of 2022. We will continue to strategically utilize our share repurchase plan while steadily returning capital to our shareholders through our quarterly dividend, as our board authorized a $0.12 per share dividend this week, which is a $0.01 per share increase from the prior quarter's dividend. This will be our 14th consecutive quarterly dividend to be paid on August 15, 2022 for shareholders of record on August 1, 2022. To conclude, we continue to experience healthy loan growth across our markets as the Texas economy continues to deliver employment and GDP growth above the national average. While we expect activity to slow in the light of the continued uncertainty about future economic conditions, due to the rising interest rate environment and persistent high inflation levels, we remain cautiously optimistic on the second half of the year as our loan pipelines remain healthy and our new lenders continue to have success in bringing quality credits to the bank. This provides confidence in our meeting or exceeding our mid- to high-single-digit loan growth guidance for the full year of 2022. That said, we will not sacrifice credit quality for growth. and we'll remain vigilant to ensure that we maintain our disciplined credit culture, which can also be seen in this quarter's results as our credit metrics continue to improve. Now let me turn the call over to Courtney.