Partial ESOP Owned South Plains Financial, Inc. Reports First Quarter 2019 Financial Results
LUBBOCK, Texas, June 24, 2019 (GLOBE NEWSWIRE) -- South Plains Financial, Inc. (NASDAQ:SPFI) ("South Plains" or the "Company"), the parent company of City Bank, today reported its results as of and for the quarter ended March 31, 2019. [SPFI is 17.2% owned by its Employee Stock Ownership Plan.]
First Quarter 2019 Financial Highlights
Net income for the first quarter of 2019 increased to $4.8 million, compared to $4.6 million(1) in the first quarter of 2018.
Diluted earnings per share were $0.32 for the first quarter of 2019, compared to $0.31(1) for the first quarter of 2018.
Net interest margin(2) was 3.93%, compared to 3.87% in the first quarter of 2018.
Deposit growth of $27.5 million, or 1.2%, for the three months ended March 31, 2019.
Return on average assets was 0.71% annualized.
Book value per share(3) of $14.80 for the first quarter of 2019, compared to $14.59 per share for the quarter ended March 31, 2018.
Total stockholders' equity to total assets(3) was 7.96%.
Curtis Griffith, South Plains' Chairman and Chief Executive Officer, stated, "The first quarter was a good start to the year for South Plains as we delivered improved earnings, year-over-year, in what is typically our lowest earnings quarter of the year given seasonality in our agricultural lending segment. Additionally, we maintained a relentless focus on expense reduction in the first quarter of 2019 as we work to drive efficiencies through the Bank and improve our profitability while delivering the outstanding customer service that our customers are accustomed to and which differentiates South Plains in our local markets. Looking forward, we continue to see opportunities to further reduce our cost structure over the balance of the year as we work to achieve an efficiency ratio more in-line with our peers. Credit quality also remained strong in all of our markets and while competition lowered our overall growth in loans, demand increased through the end of the quarter and has remained on an improving trend through the second quarter of 2019."
"We are also extremely pleased with our recent successful initial public offering when our Company's common stock began trading on the NASDAQ Global Select Market under the ticker symbol "SPFI" on May 9th," continued Mr. Griffith. "We issued 3,207,000 shares, including the overallotment option, generating net proceeds of approximately $51.4 million. We were delighted with the strong support that we received from investors during the IPO process and with the quality of our new shareholders. Our public listing is an important milestone in our Company's more than 75 year history and we believe it will position South Plains to seek attractive acquisition opportunities in our core markets of West Texas. We would like to thank our employees, customers and legacy shareholders for their trust and confidence, and we look forward to their continued support as we begin our next chapter as a public company."
Results of Operations, Quarter Ended March 31, 2019
Net Interest Income
Net interest income totaled $24.5 million for the first quarter of 2019, an increase of $1.8 million from $22.7 million for the first quarter of 2018.
Interest income totaled $32.0 million for the first quarter of 2019, an increase of $4.7 million from $27.3 million in the same period in 2018. Interest and fees on loans increased by $4.0 million from the first quarter of 2018 due to organic growth of $129.4 million in average loans and an increase of 48 basis points in interest rates.
Interest expense was $7.5 million for the first quarter of 2019 compared to $4.6 million in the prior year period. The increase from the first quarter of 2018 was due to an increase in the rate paid on interest-bearing liabilities of 54 basis points and growth in the deposit base. The average cost of deposits were 105 basis points for the first quarter of 2019, representing a 39 basis point increase from the first quarter of 2018.
The net interest margin for the first quarter of 2019 was 3.93%, an increase of 6 basis points from the first quarter of 2018. The increase from the prior year period was due primarily to the impact of higher interest-earning asset rates, offset by increases in the cost of interest-bearing liabilities.
Noninterest Income and Noninterest Expense
Noninterest income totaled $12.1 million for the first quarter of 2019, compared to $11.5 million for the first quarter of 2018. The increase in noninterest income was primarily the result of an increase of $349 thousand on the net gains on loans sold from an increase of $12.0 million in the origination of mortgage loans held for sale.
The primary components of noninterest income for the first quarter of 2019 were $4.9 million in revenue from mortgage banking activities and $2.0 million in bank card services and interchange fees.
Noninterest expense totaled $30.0 million in the first quarter of 2019, an increase of $2.1 million from $27.9 million in the prior year period. This increase in noninterest expense was primarily driven by $1.4 million in 2019 operating expenses related to the online mortgage and staff acquisition, which closed on November 30, 2018.
During the quarter, the Company incurred $115,000 of after-tax legal expenses in connection with the initial public offering and related activities.
The primary components of noninterest expense for the first quarter of 2019 were $19.1 million in salaries and employee benefits, $3.4 million in net occupancy expense, and $1.7 million in professional services.
Loan Portfolio and Composition
Loans held for investment were $1.9 billion as of March 31, 2019, compared to $2.0 billion as of December 31, 2018 and $1.8 billion as of March 31, 2018. Loans held for investment as of March 31, 2019 decreased $42.0 million, or 2.1%, from December 31, 2018, as a result of a net reduction of $43.4 million in seasonal annual paydowns on agricultural productions loans. As of March 31, 2019, loans held for investment increased $91.0 million, or 5.0%, from March 31, 2018. The primary segments of our organic growth for this period were $50.1 million in 1-4 family residential loans and $41.8 million in auto loans.
Agricultural production loans were $107.3 million at March 31, 2019, compared to $150.7 million at December 31, 2018 and $106.8 million at March 31, 2018.
Deposits and Borrowings
Deposits totaled $2.3 billion as of March 31, 2019, compared to $2.3 billion as of December 31, 2018 and $2.2 billion as of March 31, 2018. Deposits increased $27.5 million in the first quarter of 2019 and increased $145.6 million from March 31, 2018 as a result of the Company's organic growth.
Noninterest-bearing deposits were $497.6 million as of March 31, 2019, compared to $510.1 million as of December 31, 2018 and $468.3 million as of March 31, 2018. Noninterest-bearing deposits represented 21.6%, 22.4%, and 21.7% of total deposits as of March 31, 2019, December 31, 2018, and March 31, 2018, respectively.
Subordinated debt securities declined to $26.5 million at March 31, 2019 from $34.0 million as of December 31, 2018. This decline was the result of the redemption in January 2019 of the $7.5 million remaining securities that were issued by the Company in 2014.
Asset Quality
The provision for loan losses recorded for the first quarter of 2019 was $608 thousand, compared to $778 thousand for the first quarter of 2018. The allowance for loan losses to loans held for investment was 1.22% at March 31, 2019 compared to 1.18% at December 31, 2018 and 1.20% at March 31, 2018.
The nonperforming assets to total assets ratio as of March 31, 2019 was 0.37%, compared to 0.34% as of December 31, 2018 and 0.55% at March 31, 2018.
Annualized net charge-offs were 0.07% for the first quarter of 2019, compared to 0.06% for the first quarter of 2018.
(1) The Company's S Corporation revocation was effective May 31, 2018. Net income, return on average assets, return on average shareholders' equity and earnings per share for periods prior to the revocation are presented herein as if we had converted to a C Corporation as of January 1, 2018. The tax adjustment is calculated by adding back its franchise S Corporation tax to net income, and using tax rates for Federal income taxes of 21.0%. This calculation reflects only the revocation of the Company's status as an S Corporation and does not give effect to any other transaction.
(2) Net interest margin is calculated as the annual net interest income, on a fully tax-equivalent basis, divided by average interest-earning assets.
(3) Amounts are presented giving effect to the ESOP Repurchase Right Termination. See Pro Forma Financial Information below for further details.
About South Plains Financial, Inc.
South Plains is the bank holding company for City Bank, a Texas chartered bank headquartered in Lubbock, Texas. City Bank is one of the largest independent banks in West Texas and has additional banking operations in the Dallas and El Paso markets, as well as in the Greater Houston, and College Station Texas markets, and the Ruidoso and Eastern New Mexico markets. South Plains provides a wide range of commercial and consumer financial services to small and medium-sized businesses and individuals in its market areas. Its principal business activities include commercial and retail banking, along with insurance, investment, trust and mortgage services. Please visit https://www.spfi.bank for more information.
Pro Forma Financial Information
As a result of the revocation of the Company's S corporation election, the net income and earnings per share data presented herein may not be comparable for all periods presented herein. As a result, the Company is disclosing pro forma net income, income tax expense, and earnings per share as if the Company's conversion to a C corporation had occurred as of January 1, 2018.
Additionally, in accordance with applicable provisions of the Internal Revenue Code, the terms of the South Plains Financial, Inc. Employee Stock Ownership Plan ("ESOP") currently provide that ESOP participants have the right, for a specified period of time, to require us to repurchase shares of our common stock that are distributed to them by the ESOP. The shares of common stock held by the ESOP are reflected in our consolidated balance sheets as a line item called ''ESOP owned shares'' appearing between total liabilities and shareholders' equity. As a result, the ESOP-owned shares are deducted from shareholders' equity in our consolidated balance sheets. This repurchase right terminated upon the listing of our common stock on the NASDAQ, which we sometimes refer to as the ESOP Repurchase Right Termination, whereupon our repurchase liability will be extinguished and thereafter the ESOP-owned shares will not be deducted from shareholders' equity. We have disclosed the pro forma balance sheet as of March 31, 2019 to reflect the ESOP Repurchase Right Termination.
Non-GAAP Financial Measures
Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures include Tangible Book Value Per Common Share and Tangible Common Equity to Tangible Assets. The Company believes these non-GAAP financial measures provide both management and investors a more complete understanding of the Company's financial position and performance. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore, this presentation may not be comparable to other similarly titled measures as presented by other companies. Reconciliation of non-GAAP financial measures, to GAAP financial measures are provided at the end of this press release.
Forward Looking Statements
This press release contains forward-looking statements. These forward-looking statements reflect South Plains' current views with respect to, among other things, the completion of the initial public offering of its common stock. Any statements about South Plains' expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "intends" and similar words or phrases. South Plains cautions that the forward-looking statements in this press release are based largely on South Plains' expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond South Plains' control. Additional information regarding these risks and uncertainties to which South Plains' business and future financial performance are subject is contained in South Plains' Prospectus filed with the U.S. Securities and Exchange Commission ("SEC") dated May 8, 2019 ("Prospectus"), and other documents South Plains files with the SEC from time to time. South Plains urges readers of this press release to review the Risk Factors section of that Prospectus and the Risk Factors section of other documents South Plains files with the SEC from time to time. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements due to additional risks and uncertainties of which South Plains is not currently aware or which it does not currently view as, but in the future may become, material to its business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this press release. Any forward-looking statements presented herein are made only as of the date of this press release, and South Plains does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, new information, the occurrence of unanticipated events, or otherwise, except as required by law.
Contact: Mikella Newsom, Chief Risk Officer and Secretary
mnewsom@city.bank
(806) 792-7101
Source: South Plains Financial, Inc.