South Plains Financial, Inc.

and welcome to the South Plains Financial second 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 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 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. The slide deck presentation to complement today's discussion is available on the news and events section of our website, spfi.bank. Before we begin, I'd like to 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. 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 at the end of our earnings release and beginning on slide 23 of the slide deck presentation. Curtis, let me hand it over to you.

Thank you, Steve, and good afternoon. On today's call, I will briefly review the highlights of our second quarter 2023 results, as well as provide an update on our capital allocation priorities following the sale of Windmark, which closed in April. Corey will discuss our loan portfolio in more detail and how we continue to benefit from competitor mergers in our key markets. Steve will then conclude with a more detailed review of our financial results. To start, I'm very pleased with our second quarter results as they highlight the strength of our culture and the commitment that our employees have to our customers and to our company, especially in such a challenging environment for our industry. We've exited the second quarter in a strong financial position, and I'd like to thank our employees for their hard work, which can clearly be seen in our results once again this quarter. Turning to today's call, there are six key points that I hope you will take away. First, our deposits remain stable through the second quarter, further demonstrating the strength of our community-based deposit franchise. Second, despite the continued rising market interest rate environment, our net interest margin held steady from March's level as higher loan yields are offsetting the rise in our cost of funds. Third, our organic loan growth was very strong in the second quarter as we benefited from a robust loan pipeline combined with lower competition across our markets. That said, we continue to be selected in the new loans that we fund as we maintain our underwriting discipline. Fourth, the credit profile of our loan portfolio improved through the second quarter, though we did have one non-accrual addition, which I will touch on in more detail in a moment. Fifth, We further built capital this quarter through our earnings and the sale of Windmark, as our Tier 1 capital to average assets ratio increased to 11.7%. And lastly, we strategically sold a portion of our investment securities portfolio in the quarter, which we believe to be advantageous given the gain we recorded from the Windmark sale, combined with the yield improvement that we were able to achieve as we reinvested the securities sale proceeds into new loans. Turning to our results in more detail on slide four of our earnings presentation, we delivered net income of $29.7 million, or $1.71 diluted earnings per share, as compared to $9.2 million, or $0.53 diluted earnings per share, for the first quarter of 2023. This compares to net income of $15.9 million, or $0.88 for diluted common share, in the year-ago second quarter. As we discussed on our first quarter call, we completed the sale of Windmark, Citibank's wholly-owned insurance subsidiary, for $35.5 million in April in an all-cash transaction. The after-tax sale proceeds, less transaction expenses, the incentive compensation triggered by the transaction, and the realized loss on the sale of our investment securities during the second quarter resulted in $1.16 per share of of one-time net income in the second quarter. Excluding these items, we earned 55 cents per share. Given the large gain that we recorded, we made the strategic decision to sell $56 million of investment securities from our portfolio, which resulted in a realized loss of $3.4 million. We believe this was a tax-efficient transaction and will boost our earnings in future periods, given that the securities we sold were yielding approximately 2.7%, and we reinvested the proceeds in loans that are yielding more than 7% in the second quarter. The incremental income will help replace the loss of future net income from the Windmark operations. Turning to our loan portfolio, we grew loans 6.8% in the second quarter as we continued to experience healthy economic growth combined with customer dislocation in many of our markets from recent competitor mergers. Additionally, we are seeing larger competitors pull back in some markets, which allowing our team to bring new relationships to the bank, as Corey will touch on in more detail. We recorded a provision for credit losses of $3.7 million in the second quarter as compared to $1 million in the first quarter of 2023. The provision was primarily for the strong loan growth that we delivered in the quarter and a $1.3 million increase in specific reserves related to one previously classified credit relationship totaling $13.3 million that was placed on non-accrual in May of 2023. This credit was for a business that is currently in borrower-directed liquidation and from which we expect to see larger repayments starting in the third quarter of 2023. While there continues to be payment performance, we placed the relationship on non-accrual and recorded the specific reserve given that the business is no longer a going concern. As Steve will touch on in more detail, the overall credit quality of our portfolio continued to improve through the second quarter. Of note, our budget and consensus estimates were for $1.25 million of provision expense in the second quarter. Our recorded provision expense was approximately 14 cents per share above these expectations. As a result, we believe the run rate earnings of the bank, excluding all one-time items and the increased provision, was 69 cents per share in the second quarter, which bodes well for the second half of the year, as we will fully benefit from the second quarter's loan growth and improved loan yields. We grew deposits $66.5 million, or 1.9%, to $3.57 billion at June 30, 2023. as compared to the end of the first quarter, 2023. Our deposit growth was primarily due to an $81 million increase in brokered deposits, partially offset by a $67 million reduction in public funds, which had grown $118 million during the prior quarter. We are making a concerted effort to manage overall deposit levels and related interest costs. Ultimately, we will continue to build out our deposit gathering capabilities as we strive to grow core deposits and manage our cost of funds. The stability of our deposit franchise and strong liquidity position can further be seen on slide 5, which also highlights the competitive position that South Plains holds. At quarter end, 81% of our deposits were in our rural markets, with only 19% in our major metropolitan markets of Dallas, Houston, and El Paso. Additionally, our average deposit account balance is approximately $36,000, and only an estimated 16% of our total deposits are uninsured or uncollateralized. We believe we also ended the second quarter in a strong liquidity position with $1.82 billion of untapped borrowing capacity. We have $1.01 billion of availability from the Federal Home Loan Bank of Dallas, $612 million of availability from the Federal Reserve's discount window, and $200 million of capacity from the Federal Reserve's bank term funding program. We have ample capital to take advantage of growth opportunities, both organic and otherwise, as they present themselves. Given our strong capital and liquidity position, our Board of Directors authorized a $15 million stock repurchase program in May. and we bought back approximately 113,000 shares during the second quarter for $2.6 million. We continue to believe that our shares are trading below intrinsic value and do not reflect our strong results and the opportunities that we see to further grow the bank. That said, we will be cautious with our capital given the uncertain economic environment combined with the dislocation in the banking sector. We will be patient and continue to review a broad range of options to determine the best uses for the capital generated from the Windmark sale. As part of our capital allocation, returning a steady stream of income to our shareholders through our quarterly dividend has been a focus since going public over four years ago, and our Board of Directors again authorized a 13 cents per share quarterly dividend as announced last week. This will be our 17th consecutive quarterly dividend to be paid on August 14, 2023, for shareholders of record on July 31, 2023. To conclude, we are successfully navigating what is a challenging environment and remain cautiously optimistic looking into the second half of the year. Economic growth is holding remarkably steady in our markets, while unemployment remains low. We will maintain our capital as we look to take advantage of opportunities in the market and continue to conservatively grow the bank. Now let me turn the call over to Corey.