• Diluted Earnings Per Share: $0.066, unchanged from the second quarter of 2024.
• Loan Portfolio: Declined by $57 million to $3.04 billion in the third quarter.
• Indirect Auto Portfolio: Declined by $19 million to $235 million at the end of the third quarter.
• Net Interest Income: $37.3 million for the third quarter, up from $35.9 million in the linked quarter.
• Net Interest Margin: 3.65% in the third quarter, up from 3.63% in the linked quarter.
• Deposits: Increased by $95 million to $3.72 billion at September 30, 2024.
• Noninterest Income: $10.6 million in the third quarter, down from $12.7 million in the linked quarter.
• Allowance for Credit Losses: 1.41% of total loans held for investment at September 30, 2024.
• Nonperforming Loans: $24.7 million at the end of the third quarter.
• Tangible Common Equity to Tangible Assets: 9.77% at the end of the third quarter.
• Tangible Book Value Per Share: $25.75 as of September 30, 2024.
• Quarterly Dividend: Increased by 7% to $0.015 per share.

• Warning! GuruFocus has detected 5 Warning Signs with SPFI.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• South Plains Financial Inc (NASDAQ:SPFI) remains well-capitalized with a consolidated common equity tier one risk-based capital ratio of 13.25% and a tier one leverage ratio of 11.76%.
• The company experienced a significant increase in deposits, growing by approximately $95 million or more than 10% annualized in the third quarter.
• SPFI holds a strong market position, being number one in deposit share in the Lubbock market with an 18% share.
• The company has a robust new business production pipeline, the strongest in more than two years, indicating potential for future loan growth.
• SPFI's credit quality remains solid with no adverse trends observed in the third quarter, and a resolution in place for a previously nonaccrual multifamily loan in Houston.

Negative Points

• Loans held for investment declined by approximately $57 million during the third quarter due to loan payoffs and a managed decline in the indirect auto portfolio.
• Noninterest income decreased to $10.6 million from $12.7 million in the previous quarter, primarily due to a decrease in mortgage banking revenues.
• The company's third quarter earnings were negatively impacted by $0.03 per share after tax due to a decrease in the fair value adjustment of mortgage servicing rights.
• The indirect auto loan portfolio continued to decline, dropping by $19 million to $235 million at the end of the third quarter.
• SPFI's nonperforming loans increased slightly to $24.7 million at the end of the third quarter, with a significant portion attributed to a $20 million multifamily loan on nonaccrual.

Q & A Highlights

Q: Can you provide insights into the deposit pricing trends following the recent 50 basis points rate cut? A: Steven Crockett, Chief Financial Officer, noted that the trends are aligning with expectations. Some deposits, especially in the public fund arena, have rate reset days that may not reflect the full cut immediately but catch up quickly. Cory Newsom, President, added that they didn't race to the top with rates, so future cuts will be more beneficial. Curtis Griffith, CEO, mentioned a softening in CD rates across markets, indicating a less competitive environment.

Q: Did the elevated loan payoffs impact net interest income (NII) or result in any significant prepayment fees? A: Steven Crockett confirmed that there were no larger prepayment fees associated with the elevated loan payoffs, and Cory Newsom agreed that it did not impact NII significantly.

Q: What is the outlook for mortgage fees and the mortgage business given the seasonal slowdown? A: Cory Newsom explained that the fourth quarter is typically slower due to holidays, but the company has managed expenses carefully to maintain infrastructure. They expect more activity after the first of the year, with some lenders already closing more loans than last year. Curtis Griffith added that while current rates have dampened excitement, the team is still doing business.

Q: With a robust loan pipeline expected to materialize in the first quarter of next year, do you anticipate loan yields to continue rising? A: Brent Bates, Chief Credit Officer, believes loan yields will improve due to good pricing and segments of the portfolio that reprice. Cory Newsom highlighted that repricing of cheaper existing loans will contribute to yield improvement, particularly in 2025 and 2026.

Q: How have your CD rates trended following the rate cut, and what is the expected maturity schedule? A: Steven Crockett stated that most CDs are one year or less, with many in the six-month range, and they have begun to reprice down. Rates were reduced by 25 to 50 basis points post-cut. Curtis Griffith noted that the percentage of deposits in CDs is relatively low, with most demand for shorter-term CDs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.