Q4 2021 South Plains Financial Inc Earnings Call

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Speaker 2: Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. fourth quarter and full year 2021 earnings conference.

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Inc. Fourth quarter and full year 2021 earnings conference call.

Speaker 2: 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

During todays 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.

Speaker 2: 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.

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 Newson, our president.

As a reminder, a replay of this call will be available on our website within two hours at the conclusion of the call until February 10 2022.

Speaker 3: Additionally, a slide deck presentation to complement today's discussion is available on the news and events section of our website.

Additionally, a slide deck presentation to complement today's discussion is available on the news and events section of our website.

Speaker 3: 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.

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.

Speaker 3: Please see our Safe Harbor Statement in our earnings press release that was issued this afternoon and on slide 2 of the slide deck, presentation available on our website.

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.

Speaker 3: All comments made during today's call are subject to those safe harbor statements.

All comments made during today's call are subject to those safe Harbor statements.

Speaker 3: 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.

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.

Speaker 3: Additionally, during today's call, we may discuss certain non-GAAP measures which we believe are useful in evaluating our performance.

Additionally, during today's call we may discuss certain non-GAAP measures, which we believe are useful in evaluating our performance.

Speaker 3: reconciliation of these non-GAAP measures to the most comparable GAAP measures.

A reconciliation of these non-GAAP measures to the most comparable GAAP measures.

Speaker 3: 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.

It can also be found in our earnings release and on slide 19 in the slide deck presentation. At this point I'll turn the call over to Curtis.

Thank you, Steve and good afternoon.

Speaker 4: On today's call, I will briefly review the highlights of our fourth quarter and full year 2021 results.

On today's call I will briefly review the highlights of our fourth quarter and full year 2021 results.

Cory 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.

Speaker 4: Steve will then conclude with a more detailed review of our fourth quarter 2021 results.

Steve will then conclude with a more detailed review of our fourth quarter 2021 results.

Speaker 4: 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.

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.

Speaker 4: The culture that we have fostered is contributing to our results and can be seen in our employees' commitment to our customers.

The culture that we have fostered as contributing to our results and can be seen in our employees' commitment to our customers.

Speaker 4: We believe our culture also differentiates South Plains and our local markets and is a key factor in our ability to recruit high quality talent to our team.

We believe our culture also differentiate south plains, and our local markets and is a key factor in our ability to recruit high quality talent to our team.

Speaker 4: Another differentiating factor is the significant employee and insider ownership of the company, which stood at almost 40 percent 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.

Another differentiating factor is in significant employee an insider ownership at 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 are continue to be very proud of their efforts.

Speaker 4: Turning to our results, there are five key points that I would like you to take away this afternoon.

Turning to our results there are five key points that I would like you to take away. This afternoon.

Speaker 4: First, we grew our loan portfolio 9.7% year over year in 2021, exceeding our goal of mid single digit growth.

First we grew our loan portfolio at nine 7% year over year in 2021 exceeding our goal of mid single digit growth.

Speaker 4: Strength in our local Texas markets combined with the successful execution of our plan to grow our lending team contributed to these results.

Strength in our local Texas markets combined with the successful execution of our plan to grow our lending team contributed to these results.

Speaker 4: 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.

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.

Speaker 4: 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.

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.

Speaker 4: 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 team.

Fourth we have significant excess liquidity to deploy into attractive yielding organic loans as we continued to benefit from strong economic growth market share gains and the expansion of our lending team.

Speaker 4: We believe this latent earnings power will more than offset the decline in our mortgage banking revenues over the next two to three years.

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.

Speaker 4: 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.

Speaker 4: Turning to our fourth quarter 2021 results on slide four, we reported net income of $14.6 million, or $0.79 per diluted common share, which compares to net income of $15.2 million, or $0.82 per diluted common share, in the third quarter of 2021. And $15.9 million, or $0.87 per diluted common share, in the fourth quarter of 2020.

Turning to our fourth quarter 2021 results on slide four we reported net income of $14 6 million or 79 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.

<unk> and $15 9 million or <unk> 87 per diluted common share in the fourth quarter of 2020.

Speaker 4: Turning to our loan portfolio, we typically experience softer trends during the fourth quarter, given seasonal paydowns in our agricultural loan portfolio.

Turning to our loan portfolio, we typically experienced softer trends during the fourth quarter given seasonal pay downs in our agricultural loan portfolio.

Speaker 4: 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.

That said, we also continued 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.

Speaker 4: 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.

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.

Speaker 4: 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 portfolio.

And as Cory 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.

Speaker 4: This provides confidence in our outlook for achieving mid to high single-digit loan growth in the year ahead.

This provides confidence in our outlook for achieving mid to high single digit loan growth in the year ahead.

Speaker 4: 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.

Importantly, we have ample liquidity to fund this growth and 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.

Speaker 4: 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 return.

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 eighty's overtime.

As we do that we expect to deliver improved profitability earnings growth and returns.

Speaker 4: It is hard to predict how earnings will evolve as net interest income grows and mortgage banking fee income normalizes.

It is hard to predict how earnings will evolve as net interest income grows and mortgage banking fee income normalizes.

Speaker 4: 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% of total revenue going forward as compared to 23% in the fourth quarter of 2021 and 26% in the third quarter of 2021 respectively.

To help frame this for the investment community, we estimate that excess net mortgage income we are earning equates to approximately 35 to <unk> 50 per share of earnings power, which assumes mortgage banking revenues of 10% to 15% of total revenue going forward as compared to 20.

3% here in the fourth quarter of 2021, and 26% in the third quarter of 2021, respectively.

Speaker 4: We believe this is manageable and see the expansion of our commercial lending team as a critical component to successfully navigating this transition.

We believe this is manageable and see the expansion of our commercial lending team as a critical component to successfully navigating this transition.

Speaker 4: 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.

Turning to our full year 2021 results I am very proud of the success that we achieved again this year as we grew assets eight 4% year over year to $3 9 billion.

Speaker 4: grew diluted earnings per share 28% year over year to $3.17 per share.

Grew diluted earnings per share, 28% year over year to $3 17 per share.

Speaker 4: increased tangible book value per share 13% year over year to $21.51.

Increased tangible book value per share, 13% year over year to $21.51 and expanded our return on average assets 25 basis points to 156% for 2021.

Speaker 4: and expanded our return on average assets 25 basis points to 1.56% for 2021.

Speaker 4: 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.

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.

Speaker 4: Our results this year once again demonstrate that we are firmly on course.

Speaker 4: Looking forward, we believe the best way to stay on this course and achieve our goals is to remain focused on organic growth.

Looking forward, we believe the best way to stay on this course and achieve our goals is to remain focused on organic growth.

Speaker 4: 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.

As a result, our capital allocation strategy will be centered on maintaining and growing our dividend overtime, while strategically utilizing our share repurchase program.

Speaker 4: 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.

Along these lines our board of directors authorized a quarterly dividend of <unk> 11 per share. This past week, which is an increase of <unk> <unk> per share over the last quarterly dividend that we paid in November of 2021.

Speaker 4: This will be our 12th consecutive quarterly dividend and will be paid on February 14, 2022 to shareholders of record on January 31, 2022.

This will be our 12th consecutive quarterly dividend and will be paid on February 14, 2022 to shareholders of record on January 31 2022.

Speaker 4: We also repurchased approximately 120,000 shares during the fourth quarter of 2021 under our share repurchase programs. Now, let me.

We also repurchased approximately 120000 shares during the fourth quarter of 2021 under our share repurchase programs.

Now, let me turn the call over to Corey.

Speaker 5: Thank you, Curtis, and good afternoon everyone. Starting with our loan portfolio on slide five, loans held for investment at the end of the fourth quarter of 2021 were $2.44 billion, which is an increase of $8.5 million from the third quarter of 2021.

Thank you Carlos and good afternoon, everyone, starting with our loan portfolio on slide five loans held for investment at the end of the fourth quarter of 2021 were $2 4 billion, which is an increase of $8 $5 million from the third quarter of 2021.

Speaker 5: As Curtis touched on, we experienced strong organic loan growth again during the fourth quarter of 2021, which remained relationship-focused and occurred in a majority of loan segments, with the largest volume in growth in commercial land development loans, commercial retail loans, and direct energy loans. This strength, however, was largely offset.

Its part has touched on we experienced strong organic loan growth again during the fourth quarter of 2021, which remain relationship focus and a card and a majority of loan segments with the largest volume and growth in commercial land development loans commercial retail loans and direct energy loans.

This strength, however was largely offset by PPP.

Speaker 5: loan forgiveness and repayments, seasonal repayments in our agricultural portfolio, and the early payoff of two hotel loans and one large classified commercial credit.

Loan forgiveness in repayments seasonal repayments in our agricultural portfolio and the early payoff of two hotel loans and one large classified commercial credit.

Speaker 5: This high level of payout activity masks the strong underlying loan production that we experienced through the fourth quarter of 2021. Importantly, our lending team has maintained their pipelines at healthy levels while our newly hired lenders are quickly ramping their portfolios.

This high level of pay down activity masked the strong underlying loan production that we experienced through the fourth quarter of 2021 <unk>.

Importantly, our lending team has maintained their pipelines at healthy levels, while our newly hired lenders are quickly ramping their portfolios.

Speaker 5: We previously noted that we strive to have each newly hired lender reach profitability by the six-month mark. We believe that we have achieved that with our plan to date. Looking forward, we remain confident in our goal of adding 20 lenders to our 60-lender team over a two-year time frame as we focus on delivering sustainable organic growth and remain confident in our goal of delivering mid- to high-single-digit loan growth in 2022.

We previously noted that we strive to have each newly heartland to reach profitability about the six month, Mark we believe that we've achieved that with our plan to date looking forward. We remain confident in our goal of adding 20 lenders to our 60 lender team over a two year timeframe as we focus on delivering sustainable organic growth and remain confident in our goal of <unk>.

<unk> mid to high single digit loan growth in 2022.

Speaker 5: While we remain focused on growth, we also remain disciplined on credit and will not compromise our underwriting standards to grow our loan portfolio.

While we remain focused on growth. We also remain disciplined on credit and will not compromise our underwriting standards to grow our loan portfolio we.

Speaker 5: We believe our credit culture remains a key differentiator for South Plains as we consistently and aggressively review our loan portfolio for signs of potential issues and seek to remove those loans from our balance sheet before they become a real problem.

We believe our credit culture remains a key differentiator for South plains, as we consistently and aggressively review our loan portfolio for signs of potential issues and seek to remove those loans for our balance sheet before they become a real problem.

Speaker 5: The significant investment that we have made in our infrastructure, having implemented a rigorous enterprise risk management system in the aftermath of the financial crisis, has also enhanced our ability to manage credit and was instrumental in helping us to navigate the challenges that we experienced as a result of the pandemic. Overall, our underwriting process and ability to manage our loan portfolio has improved significantly as a result of our ERM system, which provides confidence as we strive to accelerate growth.

Significant investment that we've made in our infrastructure, having implemented a rigorous enterprise risk management system and the aftermath of the financial crisis has also enhanced our ability to manage credit and was instrumental in helping us to navigate the challenges that we experienced as a result of the pandemic.

Overall, our underwriting process and ability to manage our loan portfolio has improved significantly as a result of our E. R. M system, which provides confidence as we strive to accelerate growth.

Speaker 5: Turning to slide 7, we are beginning to see a normalization in our mortgage banking activity as mortgage loan originations were $314 million in the fourth quarter of 2021, as compared to $374 million of originations in the third quarter of 2021.

Turning to slide seven we are beginning to see a normalization in our mortgage banking activity as mortgage loan originations were 314 billion in the fourth quarter of 2021 as compared to $374 million of originations in the third quarter of 2021 display.

Speaker 5: This led to a $2.4 million decline in mortgage banking activities revenue in the fourth quarter of 2021 as compared to the third quarter of 2021. As Curtis touched on, we expect our mortgage banking revenues to continue to normalize and believe our plan to expand our lending team will drive an expansion to our net interest income and provide an offset to this expected decline over time.

This led to a $2 $4 million decline in mortgage banking activities revenue in the fourth quarter of 2021 as compared to the third quarter of 2021.

<unk> has touched on we expect our mortgage banking revenues to continue to normalize and believe our plan to expand our lending team will drive an expansion to our net interest income and provide an offset to this expected decline overtime.

Speaker 5: As a part of this transition, we will manage our expenses to main profitability in our mortgage business.

As a part of this transition we will manage our expenses to main profitability in our mortgage business.

Speaker 5: As outlined on slide 8, we generated $22.9 million of non-interest income in the fourth quarter of 2021, compared to $25.8 million in the third quarter of 2021. The decrease from the third quarter of 2021 was primarily due to the decline in mortgage banking activities, revenue that I just discussed, as well as the seasonal decline of $1.6 million in income from insurance activities.

Does that line on slide eight we generated $22 $9 million of noninterest income in the fourth quarter of 2021 compared to $25 8 million in the third quarter of 2021. The decrease from the third quarter of 2021 was primarily due to the decline in mortgage banking activities revenue that I just discussed as well as the.

Seasonal decline of $1 6 million and income from insurance activities.

Speaker 5: For the fourth quarter of 2021, fee income represented 42% of total revenues and continues to be a key differentiator of South Plains relative to our peers.

For the fourth quarter of 2021 fee income represented 42% of total revenues and continues to be a key differentiator of south plains really relative to our peers.

Speaker 5: To conclude, we're very fortunate to operate in strong markets with robust economic growth, which is driving strong underlying loan demand. We are also having good success recruiting experienced lenders, which provides visibility to future growth, while our existing team of lenders continue to perform at a very high level. This provides us with confidence that we can successfully manage the decline in our mortgage business. I'd like to turn the call to you.

To conclude we're very fortunate to operate in strong markets with robust economic growth, which is driving strong underlying demand. We are also having good success recruiting experienced lenders, which provides visibility to future growth, while our existing team of lenders continue to perform at a very high level.

This provides us with confidence that we can successfully manage the decline in our mortgage business.

I'd like to turn the call over to Steve now.

Speaker 3: Thank you, Corey. Starting on slide 10, net interest income was $31.4 million for the fourth quarter of 2021, as compared to $31.2 million for the third quarter of 2021.

Thank you Corey starting on slide 10.

Net interest income was $31 4 million for the fourth quarter of 2021.

As compared to $31 2 million for the third quarter of 2021.

Speaker 3: The expansion since the third quarter of 2021 was primarily due to an increase of $264,000 in loan interest income as a result of the growth of $66.1 million in average loans outstanding.

The expansion since the third quarter of 2021 was primarily due to an increase of $264000 in loan interest income as.

As a result of the growth of $66 $1 million in average loans outstanding.

Speaker 3: partially offset by a decrease of nine basis points in the yield on loans during the fourth quarter of 2021.

Partially offset by a decrease of nine basis points in the yield on loans during the fourth quarter of 2021.

Speaker 3: Looking forward, we believe that we are well-positioned for our net interest income to benefit from a rise in interest rates if the Fed were to begin raising rates through the year as is currently anticipated.

Looking forward, we believe that we are well positioned for our net interest income to benefit from a rise in interest rates. If the fed were to begin raising rates through the year as it is currently anticipated.

Speaker 3: We recognize $1.0 million in PPP fee income as an adjustment to interest income, which included accelerated income on PPP loans forgiven by the SBA during the fourth quarter of 2021.

We recognized $1.0 million in PPP fee income as an adjustment to interest income, which included accelerated income on PPP loans forgiven by the SBA during the fourth quarter of 2021.

Speaker 3: At December 31, 2021, the company had $1.9 million in deferred PPP fees, the majority of which are expected to be recognized as PPP loans continue to be forgiven by the SBA or repaid over the next several quarters.

At December 31, 2021, the company had $1 $9 million in deferred PPP fees. The majority of which are expected to be recognized as PPP loans continue to be forgiven by the SBA or repaid over the next several quarters.

Speaker 3: Our net interest margin experienced an eight basis point decrease to 3.50% in the fourth quarter of 2021, as compared to 3.58% in the third quarter of 2021.

Our net interest margin experienced an eight basis point decrease to 350% in the fourth quarter of 2021 as compared to $3 five 8% in the third quarter of 2021.

Speaker 3: The contraction in our net interest margin was primarily due to the nine basis point decline in our average yield on loans.

The contraction in our net interest margin was primarily due to the nine basis point decline in our average yield on loans.

Speaker 3: Our average cost of deposits declined two basis points to 23 basis points in the fourth quarter of 2021, as compared to 25 basis points in the third quarter of 2021.

Our average cost of deposits declined two basis points to 23 basis points in the fourth quarter 2021, as compared to 25 basis points in the third quarter of 2021.

Speaker 3: Continuing on slide 11, deposits increased in the fourth quarter of 2021 to $3.34 billion, an increase of $129 million, or 4% from September 30, 2021, as deposits continue to flow into the banking system. The majority of this increase.

Continuing on slide 11 deposits increased in the fourth quarter of 2021 to 334 billion.

An increase of $129 million or 4% from September 32021, as deposits continue to flow into the banking system.

The majority of this increase was from personal accounts.

Speaker 3: We ended the fourth quarter of 2021 with total non-interest bearing deposits.

We ended the fourth quarter of 2021 with total noninterest bearing deposits of one point I was $7 billion or 32, 1% of total deposits.

Speaker 3: of $1.07 billion or 32.1% of total deposits.

Speaker 3: Turning to slide 12, our non-performing assets to total assets ratio declined two basis points to 30 basis points in the fourth quarter of 2021, as compared to 32 basis points in the third quarter of 2021.

Turning to slide 12, our nonperforming assets to total assets ratio declined two basis points to 30 basis points in the fourth quarter of 2021 as compared to 32 basis points in the third quarter of 2021.

Speaker 3: At December 31, 2021, active loan modifications attributed to the ongoing COVID-19 pandemic totaled $15.9 million, or 70 basis points of our loan portfolio.

At December 31, 2021 active loan modifications attributed to the ongoing COVID-19, pandemic totaled $15 9 million or 70 basis points of our loan portfolio.

Speaker 3: All of these active modified loans are concentrated in our hotel portfolio and have original modified terms that extend up to 18 months.

All of these active modified loans are concentrated in our hotel portfolio and have original modified terms that stand up to 18 months.

Speaker 3: We expect that these remaining modified loans will return to full payment status at the end of their respective modification period.

We expect that these remaining modified loans were returned to full payment status at the end of their respective modification periods importantly, the credit metrics of our loan portfolio also continued to improve through the fourth quarter of 2021.

Speaker 3: Importantly, the credit metrics of our loan portfolio also continue to improve through the fourth quarter of 2021.

Speaker 3: which demonstrates our conservative credit culture and focus on credit as we grow our portfolio.

<unk> demonstrates our conservative credit culture and focus on credit as we grow our portfolio.

Speaker 3: Also, as is noted on this slide, we had a decrease of 20.3 million dollars in classified assets during the fourth quarter of 2021. This was largely the result of the payoff of one credit that was downgraded in the third quarter of 2021, along with two hotel loans being upgraded in the fourth quarter of 2021.

Also as noted on this slide we had a decrease of $23 million in classified assets. During the fourth quarter of 2021. This was largely the result of the pay off of one credit that was downgraded in the third quarter of 2021, along with two hotel loans being upgraded in the fourth quarter of 2021.

Speaker 3: Overall, we continue to believe that our loan portfolio remains well-reserved as our allowance for loan loss to total loans was 1.73% at December 31, 2021.

Overall, we continue to believe that our loan portfolio remains well reserved as our allowance for loan loss to total loans was 173% at December 31 2021.

Speaker 3: which is a decline of three basis points from September 30, 2021.

Which is a decline of three basis points from September 32021.

Speaker 3: Looking forward, we continue to believe that the reserves that we have built to help guard against an uncertain outlook are appropriate. We will continue to evaluate our reserve in the coming quarter.

Looking forward, we continue to believe that the reserves that we have built to help guard against an uncertain outlook are appropriate we will continue to evaluate our reserve in the coming quarters.

Speaker 3: Skipping ahead to slide 15, our non-interest expense was $36.1 million in the fourth quarter of 2021, as compared to $38.1 million in the third quarter of 2021.

Skipping ahead to slide 15, our noninterest expense was $36 1 million in the fourth quarter of 2021 as compared to $38 $1 million in the third quarter of 2021 the.

Speaker 3: The decline was primarily due to decrease in personnel expense due to the seasonality of lower commissions on insurance activities and lower commissions in mortgage due to reduced production versus the prior quarter.

The decline was primarily due to a decrease in personnel expense due to the seasonality of lower commissions on insurance activities and lower commissions and mortgage due to reduced production versus the prior quarter.

Speaker 3: The declines were slightly offset by ongoing technology and professional services investments for growth.

The declines were slightly offset by ongoing technology and professional services investments for growth.

Speaker 3: Looking forward, we expect core expenses to modestly rise as we add to our lending team.

Looking forward, we expect core expenses to modestly rise as we add to our lending team.

Speaker 3: Our efficiency ratio was 66.1% in the fourth quarter of 2021, as compared to 66.5% in the third quarter of 2021, an improvement despite the slowdown in our mortgage banking activity.

Our efficiency ratio was 66, 1% in the fourth quarter of 2021 as compared to 66, 5% in the third quarter of 2021, an improvement despite the slowdown in our mortgage banking activity.

Speaker 3: Moving ahead to slide 17, we remain well capitalized with tangible common equity to tangible assets of 9.85% at the end of the fourth quarter of 2021.

Moving ahead to slide 17, we remain well capitalized with tangible common equity to tangible assets of $9 eight 5% at the end of the fourth quarter of 2021.

Speaker 3: a slight decline from 9.94% at the end of the third quarter of 2021. I will now turn the call back to Curtis for

A slight decline from 994% at the end of the third quarter of 2021.

I will now turn the call back to Curtis for concluding remarks.

Speaker 4: Thank you, Steve. To conclude, our focus as a management team is to increase the value of the company through having steady balance sheet growth, remaining vigilant on credit quality, growing our organic loans, creating operational efficiency.

Thank you Steve.

To conclude our focus as a management team is to increase the value of the company through having steady balance sheet growth remaining vigilant on credit quality growing our organic loans, creating operational efficiencies and returning a steady stream of capital to our shareholders through our dividend.

Speaker 4: and returning a steady stream of capital to our shareholders through our dividends.

Speaker 4: We believe our 2021 results are a testament to our success, and I'm very proud of our accomplishments again this year, as well as the consistent results that we have delivered since our IPO, which can be seen in our tangible book value growth, as well as our improved returns.

We believe our 2021 results are a testament to our success and I'm very proud of our accomplishments again this year as well as the consistent results that we have delivered since our IPO, which can be seen in our tangible book value growth as well as our improved returns at.

Speaker 4: At the end of the fourth quarter of 2021, our tangible book value per share was $21.51 compared to $18.97 at the end of 2020 and $15.46 at the end of 2019.

At the end of the fourth quarter of 2021, our tangible book value per share was $21 51 <unk>.

Compared to $18 97 at the end of 2020 and $15 46 at the end of 2019.

Speaker 4: Likewise, our return on average assets for the full year of 2021 was 1.56% compared to 1.31% for the full year 2020 and 1.04% for the full year 2019.

Likewise, our return on average assets for the full year of 2021 was 156% compared to 131% for the full year 2020, and 1.14% for the full year 2019.

Speaker 4: Looking forward, we have the foundation in place, which positions our team for continued success through 2022 and beyond. Thank you again for your time today. Operator, please open the line for any questions.

Looking forward, we have the foundation in place, which positions our team for continued success through 2022 and beyond.

You again for your time today operator, please open the line for any questions.

Speaker 2: Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick.

Up your handset before pressing the star keys, one moment, please while we poll for questions.

Yes.

Sure.

Speaker 6: Our first question comes from the line of Brady Gailey with KBW. Please proceed with your question. Hey, thanks. Good afternoon, guys.

Our first question comes from the line of Brady Gailey with <unk>. Please proceed with your question.

Hey, Thanks, good afternoon guys.

Hey, Brian Brady.

Speaker 7: So, you know, you mentioned that mortgage revenue was about 23% in the fourth quarter. You know, longer term, you think that's 10 to 15%. As you look to 2022, do you think mortgage gets down in that 10 to 15% range, or do you think you still, you know, over-earn on mortgage a little bit in 2022 as well?

So you mentioned that mortgage revenue was about 23% in the fourth quarter longer term, you think thats, 10% to 15%.

You look to 2022.

Think mortgage gets down in that 10% to 15% range or do you think you still over earn off on mortgage a little bit in 'twenty two as well.

Speaker 5: Hey Brady, this is Corey. I guess I kind of want to clarify. You know, we talk about the 10 to 15% on mortgage. Our goal is to grow the rest of the bank to a point that mortgage only represents about 10 to 15% of where we are. We think we're probably looking closer to 20% this year on mortgage. I mean, our demand is still good. And we feel really confident the first half of the year. There's still a lot of demand. And we think a lot of people are trying to make sure they get...

Hi, Brady. This is Cory I guess I kind of want to clarify we're talking about the 10% to 15% on mortgage our goal is to grow the rest of the bank to a point that mortgage only represents about 10% to 15% of where we are we think we're probably looking closer to 20 this year on mortgage.

Our demand is still good and we feel really confident the first half of the year.

There's still a lot of demand and.

We think a lot of people are trying to make sure they get try to get.

Speaker 5: their stuff locked in before they do see much increase in rates, but we're still seeing good demand. Here's the thing that we've always got to remember about where we are. We're in Texas and our economy is so good, we're seeing some really good happenings around that.

Their stuff locked in before they do see much increase in rates, but we're still seeing good demand I mean, here's the thing that we've always got to remember about where we are we're in Texas and our economy is so good.

We're seeing some really good happenings around that.

Speaker 4: Yeah, let me just pitch it out there real quick. Realize, you know, we're pretty active in the Dallas-Fort Worth market and the Metroplex.

Yes, let me just to pitch it out there real quick realized.

We're pretty active in the Dallas Fort worth market in the Metroplex.

Speaker 4: I think we're at 120,000 people in this past year, and it's not slowing down. It's probably going to accelerate.

Hundred 20000 people in this past year, and it's not slowing down it's probably going to accelerate our Austin, gaining nearly 200 people every day moving into that market.

Speaker 4: Austin is gaining nearly 200 people every day moving into that market.

Speaker 4: Houston's still growing fast. Lubbock's expected to grow roughly 20,000 people in our little town by 2025.

Houston is still growing fast <unk> is expected to grow.

Roughly 20000 people in Idaho power by 2025. So you just didn't see this demand for housing in Texas. So yeah. The refi business is slowing and we expect it to but we've got a great group in place and we think we're starting to do a lot of good mortgage business on the home purchases. So I Cory said.

Speaker 4: So you just didn't see this demand for housing in Texas. So yeah, the refi business is slowing and we expect it to, but we've got a great group in place and we think we're still gonna do a lot of good mortgage business on the home purchasing.

Speaker 4: So, like Corey said, the long-term goal is let's get down to about 10 to 15%, depending on where we are in the cycle and all that, but that's just because the rest of the bank gets bigger, not that mortgage income drops that far.

The long term goal is let's get down to about 10% to 15% depending on where we are in the cycle and all that but thats just because the rest of the bank gets bigger mortgage income drops that far.

Speaker 7: All right, that's helpful. And then, you know, on the buyback.

Alright.

It's helpful and then.

On the buyback.

Speaker 7: Y'all were active again in the fourth quarter. I think if you look at the year, you repurchase about 2% of the company. The stock is higher now, which isn't a bad thing, but it does make the buyback a little less advantageous. How do you think about the buyback going forward? You're seeing good growth. Your stock price is a little higher. Should we expect to see you guys continue to be active on the buyback in 22?

Our active again in the fourth quarter I think if you look at the year you repurchase about 2% of the company.

The stock is higher now, which isn't a bad thing, but it does make the buyback.

A little less advantageous how do you think about the buyback going forward Youre seeing good growth your stock prices a little higher should we expect to see you guys continue to be active on the buyback in 'twenty two.

Speaker 4: I think you will. We're going to let our board look and we discuss it every quarter. And we're going to make a decision on just how active we think we need to be based on how we feel our stocks being valued in the marketplace. And currently, I think you're going to see us still active in buying some stocks.

Thank you will.

We're going to let our board look and we discuss it every quarter and we're going to make a decision on just how active we think we need to be based on how we feel our stocks being valued in the marketplace.

Currently I think you're going to see is still active in buying stock.

Speaker 7: And then I heard Steve, you know, when he was talking about the expense base, talked about, you know, kind of the expense base modestly rising. What does that mean? Does that mean, you know, kind of low to mid-single-digit level increase as we look into 22 versus 21? I don't know. I don't know. I don't know.

Okay.

And then I heard Steve when he was talking about the expense base talked about kind of your expense base modestly rising.

What does that mean does that mean youre kind of low to mid single digit level of increase as we look into.

And then the 22 versus 21.

Speaker 3: Yeah, I think you're right. Obviously, a lot of it depends on where we're, you know, what the mortgage volume does, how much that that comes back, because, you know, so much of so much of the or a large percentage of our personnel cost is is a variable number with with mortgage. So, you know, we would expect to see that, you know, moderate some as the overall volume comes back, but, you know, with kind of kind of excluding

Yes.

Thank you Rod obviously, a lot of it depends on where were you know what the mortgage volume does how much that that comes back because so much so much of the or a large percentage of our personnel cost is a variable number with with mortgage.

So we would expect to see that.

Moderate some as the overall volume comes back but.

Kind of like excluding excluding that piece of it yes Youre your range there is a good range.

Speaker 3: Excluding that piece of it, yes, your range there is.

Speaker 7: And then just lastly for me, you know, you guys mentioned $65 million of headwind you saw from the loan portfolio in the fourth quarter that you guys overcame. Do you expect to see any notable headwind in 2022 from, you know, larger loans paying off or CRE paydowns? Is there anything expected on that front this year?

Okay and then just.

Lastly for me you guys mentioned the <unk>.

$65 million of headwind you saw.

From the loan portfolio in the fourth quarter, but you guys overcame.

Do you expect to see.

Any notable headwind in 'twenty two from larger loans paying off our CRE paydowns or is there anything expected on that front this year.

Speaker 5: Well, I think we'd probably be naive to not think there would be. I mean, if you look at with the anticipation of some rate increases and things like that, we know there's going to be some headwinds. The thing is, we there's.

Well I think we'd probably be naive did not think there would be I mean, if you look at with the anticipation of some rate increases and things like that we know theres going to be some headwinds I think yes. There is.

Speaker 5: Our pipelines are solid and we're still seeing so much money sitting on the sidelines trying to go to work. If you couple that with the talent we already have in this company and the additional hires that we continue to make, we think that we're prepared for those headwinds, but we definitely think there's going to be some.

Our demand our pipelines are solid and we're still we're still seeing so much money sitting on the sidelines trying to go to work that.

You couple that with the talent, we already have and that's happening in the additional hires that we're continuing debate, we think that we're prepared for those headwinds, but we definitely think there's going to be found.

Okay, great. Thank you guys.

Okay prefect.

Thanks Brady.

Speaker 6: Your next question comes from the line of Brad Millsaps with Piper Sandler. Please proceed with your question.

Your next question comes from the line of Brad Millsaps with Piper Sandler. Please proceed with your question.

Hey, good afternoon.

Hey, guys.

Hey here yet.

Speaker 8: Good. Just maybe you wanted to ask some questions around the margin. You know, you guys, your loan yields are still, you know, relatively high, you know, compared to others, you know, up around 480 or so. Just kind of curious how you think, you know, your loan book, you know, would respond to a 25 basis point increase in the Fed funds rate. Can you just remind us, you know, what percentage of your loan portfolio would reprice immediately with any change in that index rate?

Good.

Maybe you want to ask some questions around it.

Around the margin.

You guys. Your loan yields are still relatively high compared to others are up around 480 or so.

Just kind of curious how you think.

Your loan book would respond to a 25 basis point increase in fed funds rate can you just remind us what what percentage of your loan portfolio would reprice immediately with any with any change in that index rate.

Yeah. So.

<unk>.

Speaker 9: are worried about 20.

Are we worried about 'twenty.

Speaker 3: About 20% I believe or so would reprice immediately.

About 20% I believe are so would reprice immediately.

Speaker 3: Overall, and I think we have this in our 10-Q normally, but we're just slightly asset sensitive.

Overall, and I think we.

We have this in our 10-Q normally but.

We're just slightly asset sensitive.

Speaker 3: on the whole as far as assets and liability, looking at it all together. So, you know, we do think overall we are

On the whole as far as.

Asset and liability looking at it altogether.

So we do think overall we are.

Speaker 3: position to benefit from the rise in rates.

Positioned to benefit from from the horizon rising rates.

Speaker 3: So, loan book, while there's not quite as much maybe as some others that might reprice immediately, we think we're still in good shape on how that'll work along with how we would have to reprice any of the deposits.

So loan loan book.

While there is not quite as much maybe as.

Some others that might reprice immediately we think we're still in good shape.

On how that'll work along with how we would have to.

Reprice any of it.

Apologize.

Speaker 5: You know, keep in mind, we've got about 30% of our deposits are in demand accounts.

Keep in mind, we've got about 30% of our deposits are in demand accounts.

Speaker 5: So we think that will be beneficial. We think that we're going to lag.

So we think that will be beneficial we think that we're going to lag.

Right and some of the deposit rates as we go.

Speaker 4: We've got so much liquidity on the books right now that we're just not going to be we're certainly not going to be a market leader out there on deposit rate increases. We think we can lag a good bit and if we you know, lose a few deposits. That's, that's not that big a problem.

We've got so much liquidity on the books right now but.

We're just not going to be we're certainly not going to be a market leader out there on deposit rate increases we think we can lag a good bad and if we lose a few deposits.

It's not that big a problem bluntly.

Bluntly.

Speaker 8: Yeah, sure. I wanted to follow up on the deposits, too. I know you guys aren't a big CD bank, but those costs are still, you know, kind of stubbornly high. You know, I think it was.

Yes, sure I wanted to follow up on the deposits you I know you guys aren't a big CD bank, but those costs are still.

Stubbornly high you know I think it was.

Speaker 8: 119 basis points during the fourth quarter, are those just kind of here to stay and it's just going to kind of be a slow bleed. I assume those are all longer, longer dated type CDs.

119 basis points during the fourth quarter or are those just kind of here to stay and it's just going to kind of be a slow bleed.

I assume those are all longer longer dated type Cds.

Speaker 3: Yeah, those those were some that primarily we had done a couple years back when rates when rates were higher. Some folks got some some rates locked in. You should have you should be seeing that number it is coming down every quarter. So

Yes, those those were some that.

Primarily we've done a couple of years back when rates when rates were higher than some folks got some some rates locked in.

You should have you should be seeing that number it is coming down every quarter. So.

Speaker 3: Nothing obviously going in at very high rates on anything new coming in. But yeah, there's there's still couple a Year or two left on on some of those higher higher yielding CDs

No.

Nothing obviously going in at very high rates on anything new coming in but yeah. There is still.

Couples.

A year or two left on on some of those higher higher yielding Cds.

Speaker 8: Got it. And maybe just one final kind of minor question for me, Steve, I noticed that the in fee income, the car interchange fees jumped up four or five hundred thousand dollars link quarter.

Got it and maybe just one final kind of a minor question for me, Steve I noticed that the fee income.

Card interchange fees jumped up four or $500000.

Linked quarter.

Speaker 8: Just curious, is that just you guys, your markets kind of getting back to normal? Anything in there that's, you know, sort of wouldn't be sort of run rate?

Just curious is that just you guys your markets kind of getting back to normal anything in there that's sort of would be sort of run rate.

Speaker 8: Just kind of curious, you know, kind of what caused that big that big leap, or is it just kind of Christmas shopping season, something like that? Just was curious if that's that's that's a kind of a good number going forward.

Just kind of curious kind of what caused that big that big leap or is it just kind of Christmas shopping season, something like that.

Was curious if that's a kind of a good number going forward.

Yeah. So.

Speaker 3: It usually does end up being a little bit higher in Q4, but we did have, and I think it's in the press release, if you look in that section, I think I've got the number, I don't have it here from my, I'll turn over here, but we, we had, we had some.

It usually does end up being a little bit higher in Q4, but we did have I think it's in the press release. If you look in that section I think I've got the number I don't have it here from Oh, I'll turn it over here.

We have some.

Speaker 3: performance bonuses that we got in our contract that came in in the fourth quarter. So there's kind of a non-recurring item in there I think is four

Performance bonuses that we got in our contract.

That came in in the came in in the fourth quarter.

So there is there is kind of a nonrecurring item.

In there I think is for.

Speaker 3: 434,000, that's how much it went up, but that's the biggest piece of that increase, which is kind of a non-recurring item. However, the overall trend is that those numbers are still increasing. I don't expect it to see that level.

434000.

How much it went up but that's the biggest the biggest piece of that of that increase was just kind of a nonrecurring item. However, the overall trend is that.

Those numbers are still increasing but don't expect it to see to see that level.

Yes.

Going forward each quarter.

Speaker 8: Okay. Thanks. I apologize. I must have missed that on my first time through the release, but I appreciate it. Thank you.

Okay. Thanks, I apologize I must have missed that on my first time through the through the release, but I appreciate it. Thank you.

Yes, no problem.

Thanks Brent.

Speaker 6: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Curtis Griffith for closing remarks.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Curtis Griffith for closing remarks.

Speaker 4: Well, we thank everyone for being on the call today. And we're certainly proud of the results that we achieved during 2021.

Well, we thank everyone for being on the call today, and we're certainly proud of the results that we achieved during 2021.

Speaker 4: 2022 will bring some new challenges. We're sure we hope and pray that the pandemic subsides and we can start returning to a lot more normalcy across all of our markets and all around the world too.

2022, we will bring some new challenges, we're sure we hope and pray that the pandemic subsides and we can start returning to a lot more normalcy.

All of our markets all around the world too so.

Speaker 4: So right now, we're just so proud of our employees and the hard work they put in, and we're excited to face another year, and we think we can achieve some excellent results with everything we've got in our line right now. And just ask everyone to continue to be active out there and to stay involved and reach out to us if you have any questions on anything regarding our performance here at South Plains Financial. Operator, thank you.

Right now we're just so proud of our employees and the hard work they put in and we're excited to find some other year and we think we can achieve some excellent results with everything we've got them.

Our line right now and <unk>.

Just ask everyone to to continue to be active out there and two.

Stay involved and reach out to us if you have any questions on anything regarding our performance here at South Plains financial operator, Thank you.

Speaker 6: This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.

This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.

Speaker 1: I.

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