South Plains Financial, Inc.

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. First Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened 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 first quarter 2023 earnings conference call. With me here today are Curtis Griffith, our Chairman and Chief Executive Officer, Corey Newsome, our President, and Brent Bates, our Chief Credit Officer. A replay of this call will be available on our website within two hours of the conclusion of the call until May 11th, 2023. Additionally, a slide deck presentation to complement today's discussion is available on the news and events section of our website, www.spfi.bank. 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. Reconciliation of these non-GAAP measures to the most comparable GAAP measures can also be found in our earnings release and on slide two 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 first quarter 2023 results, as well as the previously announced sale of our Windmark business, which we believe was a very good transaction for the bank and our shareholders. Corey will discuss our loan portfolio and the investments that we are making in our deposit gathering franchise, which builds upon the success that we have achieved expanding our lending platform. Steve will then conclude with a more detailed review of our quarter one results. To start, there are six key points that I hope you will take away from our results and today's call. First, the failures of Silicon Valley Bank and Signature Bank created widespread concern across the banking industry in the days following their collapse. Our results this quarter speak directly to the strength and financial soundness of the bank, as well as the customer relationships that we have developed over many years, which can also be seen in our first quarter deposit growth. Second, we ended the quarter with 17% of our deposits uninsured or uncollateralized, which is an improvement from 26% at year-end 2022. Third, we are in a very strong liquidity position, with $1.75 billion of available borrowing capacity at quarter-end from the Federal Home Loan Bank and the Federal Reserve's discount window and bank term funding program, none of which we are currently utilizing. Fourth, we further built capital this quarter through our earnings, as our Tier 1 capital to average assets ratio was 11.2%. Fifth, the credit profile of our loan portfolio remained strong and stable from the fourth quarter of 2022. And lastly, our markets remained healthy, though slowing, as we posted 5.9% annualized loan growth in the first quarter. Turning to our results in more detail on slide four of our earnings presentation, we delivered net income of $9.2 million or 53 cents per share as compared to $12.6 million or 71 cents for diluted common share for the fourth quarter of 2022. This compares to net income of $14.3 million or 78 cents for diluted common share in the year-ago first quarter. We recorded a provision for loan losses of $1 million in the first quarter of 2023, as compared to a provision of $248,000 in the fourth quarter of 2022. The provision was mainly due to our organic loan growth in the quarter. Looking forward, we believe we are well reserved for an uncertain economic environment. While the Texas economy continues to grow, given strong in-migration and low unemployment That growth is slowing and the availability of credit throughout the U.S. is broadly contracting, which could negatively impact the Texas economy in the quarters ahead. As a result, additional provisions for loan losses may be necessary in future periods. While economic activity is moderating, we did experience healthy loan growth of 5.9% annualized as compared to the fourth quarter of 2022. Our loan growth was driven by gains in both our community markets as well as our major metropolitan markets. Corey will touch on this in more detail as well as our outlook for the rest of the year in the moment. We grew deposits $102 million or 12% annualized to $3.51 billion at March 31st, 2023 as compared to the fourth quarter of 2022. Our deposit growth was largely from public funds. as we focused on liquidity through the first quarter and which remains a high priority for our team. While we did get more competitive with deposit interest rates to maintain relationships, we did not utilize time deposits outside of the normal course of business. Additionally, while our cost of funds did rise through the quarter, especially around the failures of SBB and Signature Bank, we believe the pressure on deposit rates is now beginning to flatten out through April which is an encouraging sign, and we believe we can remain below our original estimate of a 50% beta on interest-bearing deposits through the year. The stability of our deposit franchise and strong liquidity position can further be seen on slide five, which also highlights the competitive position that South Plains holds. At quarter end, 82% of our deposits were in our rural markets. with only 18% in our major metropolitan markets. Additionally, our average deposit account balance is approximately $35,000, and only an estimated 17% of our deposits are uninsured or uncollateralized. We also ended the first quarter in a strong liquidity position, with $1.75 billion of untapped borrowing capacity. We have $988 million of availability from the Federal Home Loan Bank of Dallas, $586 million of availability from the Federal Reserve's discount window, and $179 million of capacity from the Federal Reserve's Bank Firm Funding Program. We are in a strong position with ample capital to take advantage of growth opportunities as they present themselves. Turning to Winmark, we completed the sale of Citibank's wholly-owned subsidiary to Alliant Insurance Services for $35.5 million in an all-cash transaction with no earn-outs. Winmark offers a variety of crop insurance products through offices in Texas, Nebraska, and Colorado, as well as by acting as the general agency for independent agents in 17 states. Windmark was a terrific business for us since its inception in 1997. That said, we knew that we were at the point where we either had to commit significant additional capital and resources to sustain and grow the business or look to divest it. Ultimately, we began exploring potential strategies with Windmark last year, given that crop insurance is not core to South Plains. We believed Alliant was a good fit for Windmark given their ability to invest in the business combined with their commitment to retain our people and customers. Looking forward, our board of directors is reviewing the optimal uses for this capital as the transaction provides the flexibility to further invest in our core business while augmenting our capital base. Given the uncertain economic environment combined with the dislocation in the banking sector, We will be patient and review a broad range of options to determine the best uses for this capital. Returning a steady stream of capital to our shareholders through our quarterly dividend and share repurchases has been a focus since going public almost four years ago. Along those lines, our Board of Directors authorized a $0.13 per share quarterly dividend as announced last week. This will be our 18th consecutive quarterly dividend to be paid on May 15th 2023 for shareholders of record on May 1st, 2023. In regards to our share buyback, we utilized the remaining capacity on our share repurchase authorization in the fourth quarter of 2022. Our board of directors is currently weighing the merits of another share repurchase program in light of the current economic environment. Our management team and board both believe that our shares are currently trading well below their intrinsic value. To conclude, we are successfully navigating what is a challenging environment and believe we are well positioned for an uncertain economy. We believe that we have a strong core deposit franchise, ample liquidity, and remain confident in the credit quality of our portfolio. Importantly, we are positioned to take advantage of opportunities in the market that may come our way in the year ahead, but we believe that now is not a good time to pursue any acquisitions. Now let me turn the call over to Corey.