8-K
SOUTH PLAINS FINANCIAL, INC. (SPFI)
falseSOUTH PLAINS FINANCIAL, INC.TX021-6537800-00000005219 CITY BANK PARKWAYLUBBOCKTX79407-3544000116366800011636682021-03-022021-03-02
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 2, 2021
South Plains Financial, Inc.
(Exact name of registrant as specified in its charter)
| Texas | 001-38895 | 75-2453320 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 5219 City Bank Parkway<br><br> <br>Lubbock, Texas | 79407 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
(806) 792-7101
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $1.00 per share | SPFI | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 7.01 | Regulation FD Disclosure. |
|---|
On March 2, 2021, South Plains Financial, Inc. (the “Company”) will present at the Western Financial Services Conference hosted by Piper Sandler & Co. A copy of the investor presentation that the Company will use at the conference is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. A copy of the investor presentation will also be available on our website, www.spfi.bank, under the “News & Events” section.
In accordance with General Instruction B.2 of Form 8-K, the information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1 hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1 hereto, shall not be incorporated by reference into any filing or other document pursuant to the Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
| Item 9.01 | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits. |
| --- | --- |
| 99.1 | South Plains Financial, Inc. Investor Presentation, dated March 2, 2021. |
| --- | --- |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SOUTH PLAINS FINANCIAL, INC. | ||
|---|---|---|
| Dated: March 2, 2021 | By: | /s/ Curtis C. Griffith |
| Curtis C. Griffith | ||
| --- | ||
| Chairman and Chief Executive Officer |
Exhibit 99.1
South Plains Financial Investor Presentation March 2021 1
Safe Harbor Statement and Other Disclosures FORWARD-LOOKING STATEMENTSThis presentation contains, and future oral and written statements of South Plains Financial, Inc. (“South Plains” or the “Company”) and City Bank (“City Bank” or the “Bank”) may contain, statements about future events that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect South Plains’ current views with respect to, among other things, future events and South Plains’ financial performance. 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. Forward-looking statements include, but are not limited to: (i) projections and estimates of revenues, expenses, income or loss, earnings or loss per share, and other financial items, (ii) statements of plans, objectives and expectations of South Plains or its management, (iii) statements of future economic performance, and (iv) statements of assumptions underlying such statements. Forward-looking statements should not be relied on because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of South Plains and City Bank. These risks, uncertainties and other factors may cause the actual results, performance, and achievements of South Plains and City Bank to be materially different from the anticipated future results, performance or achievements expressed in, or implied by, the forward-looking statements. Factors that could cause such differences include, but are not limited to, local, regional, national and international economic conditions, the extent of the impact of the COVID-19 pandemic, including the impact of actions taken by governmental and regulatory authorities in response to such pandemic, such as the Coronavirus Aid, Relief, and Economic Security Act and subsequent related legislations, and the programs established thereunder, and City Bank’s participation in such programs, volatility of the financial markets, changes in interest rates, regulatory considerations, competition and market expansion opportunities, changes in non-interest expenditures or in the anticipated benefits of such expenditures, the receipt of required regulatory approvals, changes in non-performing assets and charge-offs, adequacy of loan loss reserves, changes in tax laws, current or future litigation, regulatory examinations or other legal and/or regulatory actions, the impact of any tariffs, terrorist threats and attacks, acts of war or threats thereof or other pandemics. Therefore, South Plains can give no assurance that the results contemplated in the forward-looking statements will be realized and readers are cautioned not to place undue reliance on the forward-looking statements contained in this presentation. For more information about these factors, please see South Plains’ reports filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”), including South Plains’ most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q on file with the SEC, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Further, any forward-looking statement speaks only as of the date on which it is made and South Plains undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law. All forward-looking statements, express or implied, herein are qualified in their entirety by this cautionary statement.NON-GAAP FINANCIAL MEASURESManagement believes that certain non-GAAP performance measures used in this presentation provide meaningful information about underlying trends in its business and operations. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, SPFI’s reported results prepared in accordance with GAAP. Numbers in this presentation may not sum due to rounding. 2
A Leading West Texas Franchise 3 Financial Snapshot (As of Dec. 31, 2020) Our Company Bank holding company headquartered in Lubbock, Texas with $3.6 billion in total assetsOne of the largest independent banks headquartered in West TexasExecuted a successful IPO in May 2019; now one of two publicly-traded Texas institutions west of I-35Repeatedly recognized as an outstanding place to work, including being on American Banker’s Best Banks to Work For list six consecutive times Balance Sheet (Dollars in thousands) 4Q20 Total Assets $3,599,160 Total Loans Held for Investment $2,221,583 Allowance for Loan Losses $45,553 Total Deposits $2,974,351 Interest-bearing Deposits $2,057,029 Noninterest-bearing Deposits $917,322 Total Stockholders’ Equity $370,048 Profitability (Dollars in thousands) 4Q20 Net Income $15,924 Return on Average Assets (annualized) 1.76% Return on Average Equity (annualized) 17.53% Net Interest Margin 3.64% Efficiency Ratio 64.19% Capital Ratios 4Q20 Total Stockholders’ Equity to Total Assets 10.28% Tangible Common Equity to Tangible Assets 9.60% Common Equity Tier 1 to Risk-Weighted Assets 12.96% Tier 1 Capital to Average Assets 10.24% Total Capital to Risk-Weighted Assets 19.08% Asset Quality 4Q20 Nonperforming Loans to Total Loans Held for Investment 0.67% Nonperforming Assets to Total Assets 0.45% Allowance for Loan Losses to Total Loans Held for Investment 2.05% Net Charge-Offs to Average Loans Outstanding (annualized) 0.11% Financial data as of December 31, 2020 as complied and reported by South PlainsNote: Tangible common equity is a non-GAAP measure. See appendix for the reconciliation to GAAP Recent Events Approximately $60 million in new PPP loans in 2021Active loan modifications less than 2.8% of loans held for investmentYear-to-date mortgage loan originations of $125 million(as of February 28, 2021)
Our History and Growth Profile 4 Our History Loans and Deposits ($M) First State Bank of Morton, a community bank that held approximately $1 million of total assets in 1941Parent company to First State Bank of Morton acquired South Plains National Bank of Levelland, Texas in 1991 and changed its name to South Plains BankCompany became the holding company to First State Bank of Morton and South Plains Bank in 1993Acquired City Bank in 1993, which was originally established in Lubbock in 1984, and merged First State Bank of Morton and South Plains Bank into City Bank in 1998 and 1999, respectively$59.2 million initial public offering on May 8, 2019, pricing with-in the range at $17.50Closed the $76.1 million acquisition of West Texas State Bank on November 12, 2019, which added six branches to the Midland / Odessa area and approximately $430 million in assetsToday we serve our customers through 25 full-service banking locations across six geographic markets, and 13 mortgage loan production offices Note: Tangible common equity is a non-GAAP measure. See appendix for the reconciliation toGAAP; Company documents; S&P Global Market Intelligence Tangible Common Equity ($M) Total Assets ($M)
Investment Highlights 5 Improving Profitability Organic Growth Strong Credit Culture Enterprise Risk Management Experienced Management Team Emphasize Community Banking Capital Allocation to Drive Value 1 2 3 4 5 6 7
Experienced Management Team 6 Curtis C. GriffithChairman & Chief Executive Officer Elected to the board of directors of First State Bank of Morton, Texas, in 1972 and employed by it in 1979Elected Chairman of the First State Bank of Morton board in 1984Chairman of the Board of City Bank and the Company since 1993 Steven B. CrockettChief Financial Officer & Treasurer Began his career in public accounting in 1994 by serving for seven years with a local firm in Lubbock, TexasAppointed Chief Financial Officer in 2015Controller of the Bank and The Company for 14 and 5 years respectively Mikella D. NewsomChief Risk Officer & Secretary 24-year banking careerAppointed Chief Risk Officer of the Company in 2019Chief Risk Officer of the Bank for 5 years Appointed Secretary of the Company in 2013Previously Chief Financial Officer of the Bank Cory T. NewsomPresident Entire banking career with the Company focused on lending and operationsAppointed President and Chief Executive Officer of the Bank in 2008Joined the Board in 2008 Brent A. BatesCity Bank’s Chief Credit Officer Joined City Bank in February 2020Division Credit Officer for Simmons First National CorpEVP and Chief Credit Officer of Southwest Bancorp, Inc. 1
Significant Insider Share Ownership Stakeholders / Insiders currently own approximately 40.2% of the Company 7 Shares1 Name Title Position % Outstanding Market Value ($000’s) South Plains Financial ESOP ESOP 2,638,497 14.60% $50,000 Curtis C. Griffith Chairman & CEO 2,485,542 13.75% 47,101 Henry Taw, L.P. * Individual 1,703,787 9.43% 32,287 Cory T. Newsom President & Director 210,883 1.17% 3,996 Noe G. Valles Director 83,272 0.46% 1,578 Steven B. Crockett CFO & Treasurer 49,429 0.27% 937 Richard D. Campbell Lead Director 43,899 0.24% 832 Kelly L. Deterding Pres. Insur Division & SVP of Insur Dev (Bank) 22,699 0.13% 430 Mikella D. Newsom Chief Risk Officer and Secretary 18,382 0.10% 348 Kyle R. Wargo Director 7,672 0.04% 145 Allison S. Navitskas Director 3,672 0.02% 70 Cynthia B. Keith Director 3,672 0.02% 70 Total 7,271,406 40.23% $137,793 Market data as of December 31, 2020; Shareholder information as of December 31, 2020. Source: Company filings and documents; S&P Global Market Intelligence 1 * - Voting power for shares is with Richard D. Campbell
Emphasis on Community Banking 8 2 Our strategy - deliver best-in-class customer service and achieve our goal of becoming the preferred community bank in our market areasTo achieve our goal - we build long-lasting relationships with our customers by delivering high quality products and services Our focus on providing “big bank” products with the personal attention of a community bank resonates with our customers and drives market shareOur customer service-driven, community-focused business model differentiates our company from competitors, many of which are larger out-of-market banks Our Goal We measure success by the support that we can provide to our local communities, not the level of business that we can achieveProviding service and aid to our communities is, ultimately, how we have succeeded over our long historyOur dedication and commitment is at the core of City Bank’s culture as we encourage our employees to volunteer, including as part of their workOur employees have partnered with Meals on Wheels to help care for senior citizens in Lubbock and the Bank has also been a long time supporter of the South Plains Food Bank and have made a five year, $150,000 pledge Dedicated to Supporting our Communities
Market Branches1 Deposits($ millions)1 Market Highlights 10 $1,939 Population in excess of 310,000 with major industries in agribusiness, education, and trade among othersHome of Texas Tech University – enrollment of 40,000 students 6 $271 Area produces about 71% of the crude oil in Texas and accounts for 41% of U.S. oil outputResponsible for the production of nearly four million barrels of crude oil per day, or roughly one third of Total U.S. oil production 3 $367 DFW is the largest MSA in Texas and fourth largest in the nationResponsible for producing 28% of Texas GDP in 2019Home to 24 Fortune 500 Companies 2 $157 Population of 840,000+ with major military presence through Fort BlissAdjacent to Juarez, Mexico, which has a growing industrial center, and an estimated population of 1.5 million peopleHome to four universities including The University of Texas at El Paso 2 $144 Serves as a regional economic hubLarge investments from developers over the past ten years – housing subdivisions, condominiums, retail establishments, etc.Growing retirement community 1 $62 Home to Texas A&M University – enrollment of 71,000 studentsRanked first in Texas and second nationwide for Best Small Places for Business and Careers in 2019 by Forbes 1 $34 Second largest MSA in Texas and fifth largest in the nationHome to 22 Fortune 500 CompaniesCalled the “Energy Capital of the World,” the area also boasts the world’s largest medical center and second busiest port in the U.S. Ruidoso /Eastern New Mexico El Paso Our Markets of Operation 9 2 Source: Company documents; FRED; S&P Global Market Intelligence; Respective university websites; Branch and deposit data as of December 31, 2020 Permian Basin Dallas /Ft. Worth Bryan /College Station Houston /The Woodlands Lubbock /South Plains
Our Markets of Operation (Cont’d) 10 Deposit Market Share: Lubbock MSA Lubbock, Texas – Our Home Market Major industries include agriculture – primarily cotton, corn, and grain sorghum – as well as education, trade and transportation, health services and governmentHome to Texas Tech University – enrollment ranks within the top 10 for universities in Texas as of Fall 2020 at 40,000+ studentsThe Lubbock MSA reports unemployment of 5.8% for 2020Forbes listed Lubbock as one of its ‘‘Best Places for Business and Careers’’ during 2019 Headquarters In-Market Rank Institution City State Branches Deposits (Millions)(1) Market Share 1 Hilltop Holdings Dallas TX 10 $1,972 19.4% 2 South Plans Financial Lubbock TX 8 $1,631 16.1% 3 Wells Fargo San Francisco CA 9 $905 8.9% 4 Prosperity Bancshares Houston TX 16 $817 8.1% 5 Amarillo National Bancorp Amarillo TX 9 $767 7.6% 6 Heartland Financial USA Dubuque IA 7 $744 7.3% 7 Peoples Bancorp Lubbock TX 6 $499 4.9% 8 Bank of America Charlotte NC 2 $432 4.3% 9 Vista Bancshares Dallas TX 7 $330 3.3% 10 Americo Bancshares Wolfforth TX 5 $268 2.7% 11 AIM Bancshares Levelland TX 4 $239 2.4% 12 Happy Bancshares Amarillo TX 2 $211 2.1% 13 Plains Bancorp Dimmitt TX 3 $207 2.0% 14 First Bancshares of Texas Midland TX 2 $191 1.9% 15 Lone Star State Bancshares Lubbock TX 1 $187 1.8% Top 1 - 15 Total 91 $9,400 92.8% Total For Market (27) 113 $10,147 100.0% 2 Deposit data as of June 30, 2020 as complied and reported by S&P Global Market Intelligence. Source: BLS; FDIC; S&P Global Market Intelligence; Lubbock Chamber of Commerce; Forbes
Enterprise Risk Management 11 3 We implemented a rigorous enterprise risk management (“ERM”) system in the aftermath of the financial crisis, and view this development as a defining event for our institution This system delivers a systematic approach to risk measurement and enhances the effectiveness of risk management across the institution Integrating this system into our culture and strategic decision making has improved all functional areas of the business Significantly improved asset quality by enhancing our underwriting process, and establishing a specific credit appetite that aligns to the broader enterprise risk management framework Has provided a process to quickly detect and address potential problems in our loan portfolio, greatly improving our ability to manage through the COVID-19 pandemic We have also implemented monitoring and controls for other functional areas such as:Information security and technology, vendor management, liquidity, interest rate risk, compliance, and company reputation The ERM program has positioned our Company to better consummate acquisitions with less risk and increased cost savings We believe we are the only community bank of our size and in our market area to implement such a comprehensive risk management system
Our Credit Culture 12 We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based cultureSubstantially all of our loans are made to borrowers located, or operating, in our primary market areas with whom we have ongoing relationships across various product linesThe few loans secured by properties outside of our primary market areas were made to borrowers who are otherwise well-known to usWe adhere to what we believe are disciplined underwriting standards, but also remain cognizant of serving the credit needs of customers in our primary market areas by offering flexible loan solutions in a responsive and timely mannerOur lending policies do not provide for loans that are highly speculative, subprime, or that have high loan-to-value ratiosWe maintain asset quality through an emphasis on the following: These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our organization to our shareholders, customers, employees, and communities 4 Local market knowledge Long-term customer relationships Consistent and thorough underwriting Conservative Credit Culture Loan Portfolio Diversity Relationship Focused Source: Company documents
Loan Approval Process 13 Striking a Balance Between: In Our Decision Making and Responsiveness to Customers Prudence Disciplined Underwriting Flexibility Loans in excess of an individual officer’s lending limit up to $1 million may be approved by one of three lending and credit senior officersLoans to relationships between $1 million and $15 million are approved by our Lending Market Committee, or the Executive Loan Committee, depending on sizeRelationships in excess of $15 million are to be reviewed by the Board Credit Risk CommitteeThese limits are reviewed periodically by the Company’s Board of DirectorsWe believe that our credit approval process provides for thorough underwriting and efficient decision making 4
Credit Quality 14 4Q’20 Highlights Credit Quality Ratios Recorded a $141 thousand provision for loan losses in 4Q’20 as compared to $6.1 million in 3Q’20 as the result of modest improvements in the economy and a decline in loans actively under a modificationTotal classified loans decreased $6 million in 4Q’20Nonperforming assets and net loans charged-off during quarter had a small decrease in 4Q’20 compared to 3Q’20 Net Charge-Offs to Average Loans ALLL to Total Loans HFI Source: Company documents 4
(Dollars in thousands) Total # of Active Active Mod % Loan Segment Balance Loan Mods Mods of Segment Hospitality $ 123,495 11 $ 56,943 46.1% Hotels (Under Construction) 14,998 - - 0.0% All Other CRE 520,706 3 638 0.1% Oil & Gas 64,007 7 270 0.4% Restaurant & Retail - Owner Occ. 90,515 7 1,911 2.1% All Other Commercial 509,618 9 2,422 0.5% Residential Real Estate 360,315 6 365 0.1% Consumer 273,435 72 1,529 0.6% Residential Construction 94,494 - - 0.0% Paycheck Protection Program ("PPP") 170,000 - - 0.0% Total $ 2,221,583 115 $ 64,078 2.9% COVID-19 Loan Modifications – Updated (As of December 31, 2020) 15 The Company has taken an aggressive and proactive approach to managing credit in light of the economic uncertainty caused by the ongoing COVID-19 pandemicCustomers were offered a range of loan modifications with six months interest only being the preferred option by the BankActive modifications do not include loans that were previously modified but where the first scheduled payment post-modification has not been madeActive modifications as a percent of loans held for investment have declined from 5.4% at September 30, 2020 to 2.9% at December 31, 2020 Highlights Source: Company documents 4 Active Loan Modifications
COVID-19 Loan Modifications – Updated (As of December 31, 2020) 16 Other modifications were primarily hotel loans that had interest-only periods of 12 months or a combination of a 90 day deferral and 9 months of interest-only Hospitality has the highest modification status at 46.1% of loans in that segment, due to the potential long-term stress in the industry Note: Other reflects loan deferrals classified under the CARES Act Section 4013Source: Company documents Modification Type (Dollars in thousands) 6 month 90 Day Consumer Loan Segment Interest Only Deferral & Mortgage Other Total Hospitality $ - $ - $ - $ 56,943 $ 56,943 Hotels (Under Construction) - - - - - All Other CRE 237 - - 401 638 Oil & Gas 115 38 - 117 270 Restaurant & Retail - Owner Occ. 597 - - 1,314 1,911 All Other Commercial 93 70 - 2,259 2,422 Residential Real Estate - 186 179 - 365 Consumer - - 1,529 - 1,529 Residential Construction - - - - - Paycheck Protection Program ("PPP") - - - - - Total $ 1,042 $ 294 $ 1,708 $ 61,034 $ 64,078 % of Loans 0.1% 0.0% 0.1% 2.7% 2.9% 4 Active Loan Modifications
We are actively recruiting additional lenders and employees from other institutions. We have had success in this area which we believe is attributable to our employee ownership, long-standing market presence and desirable culture in which our employees can thrive We also cross-sell our various banking products, including our deposits and treasury wealth management to our commercial loan customers, which we believe provides a basis for expanding our banking relationships Organic Growth Strategy Homegrown Returns We focus on leveraging our banking platform in our metropolitan markets of Dallas, Houston and El Paso, where we target customers looking for our relationship-based approach to banking and our sophisticated products and services Our strategy is to continue gathering low-cost deposits in smaller, non-metropolitan markets and deploy our excess funds in larger, more dynamic lending markets, where we have had strong success 17 Includes three Dallas, TX branches, two El Paso, TX branches, and one Houston, TX branchIncludes ten branches in the Lubbock/South Plains market area, six branches in the Permian Basin, TX, two branches in Ruidoso/Eastern, NM, and one branch in Bryan/College Station, TXDeposit and Loan data as of December 31, 2020 (Dollars in thousands) Deposits(3) Loans(3) Amount Overall % Amount Overall % Loans/Deposits Metropolitan Markets(1) $ 558,026 18.8% $ 671,363 30.2% 120.3% Community Markets(2) $ 2,416,325 81.2% $ 1,550,220 69.8% 64.2% 5
Organic Growth Markets 18 El Paso Adjacent to Juarez, Mexico, which has a growing industrial center and an estimated population of 1.5 million people, and has contributed to significant growth in the El Paso MSACivil employers include a number of universities, including The University of Texas at El Paso, The Texas Tech School of Medicine, El Paso Community College, and Vista CollegeHome to Fort Bliss, which houses the 1st Armored Division, the 32nd Army Air and Missile Defense Command and the 402nd Field Artillery Brigade, among other major units 5 Financial data as of December 31, 2020 as complied and reported by South Plains New Mexico Texas Dallas Bryan /College Station Houston Midland Odessa El Paso Lubbock Ruidoso SanAntonio Ft. Worth Austin Albuquerque Santa Fe SPFI Branches (25)653 FTE Employeesas of Dec. 31, 2020 Dallas / Ft. Worth Largest MSA in Texas, responsible for a total GDP of almost $524 Billion in 2019Estimated population of about 8 million as of 2019, which is a little over 26% of the state’s populationPopulation has steadily expanded over the past decade, with an increase of over 1.2 million residentsCompetitive cost of living, provides an attractive location for companies interested in relocating to more efficient economic environments Major U.S. Airport hub, responsible for 35.8 million enplaned passengers in 2019Home to 24 Fortune 500 companies, in notable sectors including energy, financial services, transportation, and technology.
Capital Allocation to Drive Value 19 Growth Through Accretive M&A We plan to take advantage of acquisition opportunities, and use a combination of public stock and cash to become the acquirer of choice in our core markets of West Texas and New MexicoCatalysts for acquisition activity include management succession, shareholder liquidity needs, scale, and excessive regulationThere are 25 banks located in the West Texas market area with total assets between $250 million and $2.0 billion, which provides us with ample opportunities to drive growth and increase shareholder valueManagement employs a strict framework for analyzing potential acquisition opportunities including:Substantial earnings accretionReasonable tangible book value dilutionAcceptable earn-back periodStrong Internal Rate of ReturnCompleted the acquisition of West Texas State Bank on November 12, 2019 6 Most Recent Acquisition Metric Promised? Delivered? Contiguous West Texas Market Manageable Size Attractively Priced Substantial EPS Accretion TBV Earnback < 4 Years TBV Dilution Under 10% Strong IRR
Improving Profitability 20 We have invested heavily into our infrastructure including:Our Enterprise Risk Management system State-of-the-art operations center which houses the Bank’s back-office processing for deposit operations, loan operations, mortgage operations, and corporate trainingDigital and payment technologies including improved remote deposit capture software for business customers, expanded usage of electronic signatures, online account tools, and technologies that facilitate more efficient item processing These investments position the Bank to scale to more than $5 billion in assets through both organic growth and accretive, strategic M&A without commensurate additional expenses Long Term Goal: Deliver peer average or better ROA’s and ROE’s 7
Investment Highlights 21 Improving Profitability Organic Growth Strong Credit Culture Enterprise Risk Management Experienced Management Team Emphasize Community Banking Capital Allocation to Drive Value 1 2 3 4 5 6 7
Financial Update 22
Fourth Quarter and Full Year 2020 Highlights 23 Note: Tangible book value per share and pre-tax, pre-provision income are non-GAAP measures. See appendix for the reconciliation to GAAP Source: Company documents Net Income of $15.9 million, compared to $16.7 million in 3Q’20 and $10.1 million in 4Q’19Diluted earnings per share of $0.87, compared to $0.92 in Q3’20 and $0.55 in 4Q’19Pre-Tax, Pre-Provision income of $20.0 million, compared to $26.9 million in 3Q’20 and $13.7 million in 4Q’19Provision for loan loss of $141 thousand, compared to $6.1 million in Q3’20 and $896 thousand in 4Q’19Average cost of deposits declined 3 bps to 31 bps, compared to 34 bps in 3Q’20 and 98 bps in 4Q’19 Net Interest Margin of 3.64%, compared to 3.82% in 3Q’20 and 4.03% in 4Q’19 Fourth Quarter 2020 Highlights $3.6 billion in total assets, compared to $3.2 billion at 12/31/19Net Income of $45.4 million, compared to $29.2 million in 2019Diluted earnings per share of $2.47, compared to $1.71 in 2019Efficiency ratio of 63.0%, compared to 75.3% in 2019Tangible Book value per share of $18.97 at year end 2020, compared to $15.46 at year end 2019 Return on Average Assets of 1.31%, compared to 1.04% in 2019 Full Year 2020 Highlights
Loan Portfolio 24 Total Loans decreased $66.7 million compared to 3Q’20Decrease in total loans during the quarter was due primarily to:$41.8 million in forgiveness and paydowns on PPP loans$28.0 million in pay downs on seasonal agricultural production loansEarly payoff of a $16.0 million state and municipality loan4Q’20 loan yield of 5.11%; a decrease of 17 bps compared to 3Q’20 excluding PPP loans 4Q’20 Highlights Total Loans Held for Investment$ in Millions Source: Company documents
Loan Portfolio 25 Portfolio Composition (Dollars in thousands) Loan Portfolio 4Q’20 Commercial C&D $ 89.5 Residential C&D 166.1 CRE Owner/Occ. 208.5 Other CRE Non Owner/Occ. 435.5 Multi-Family 66.7 C&I 276.4 Agriculture 175.2 1-4 Family 360.3 Auto 205.8 Other Consumer 67.6 PPP 170.0 Total $ 2,221.6 Source: Company documents
DirectEnergy Select Loan Industry Concentration Detail 26 As of December 31, 2020 Hospitality Total operating hospitality loans of $123 million*$15 million in hotels under construction, with unfunded commitments of $9 million83% of balances are to limited service hotels43% of operating hospitality classified; 2% is nonaccrual; < 0.5% are 30 days or more past dueALLL on operating hospitality is 7.7%** Does not include loans reported in construction and development Total direct energy loans of $64 million92% support services, 8% upstreamNearly 100% are located in Permian and Palo Duro Basins12% of energy sector classifiedALLL on energy sector is 5.3% Hotels by Geography Source: Company documents Energy Support Services by Type
Noninterest Income 27 Noninterest Income$ in Millions 4Q’20 Highlights Noninterest income of $26.2 million, compared to $16.7 million in 4Q’19Revenue from mortgage banking activities:Improved $10.3 million based on an increase of 146% in production in 4Q’20 compared to 4Q’19Declined $4.5 million as a result of lower interest rate lock commitments in 4Q’20 compared to 3Q’20Fee income primarily driven by mortgage operations, debit card and other bank service charge income, and income from insurance, trust and investment services business Source: Company documents
Mortgage Banking Overview 28 Mortgage Banking Activity$ in Millions 2020 Highlights 125% increase in mortgage loan originations for the full year 2020 to $1.4 Billion compared to $641 million for the full year 20192020 volume was 53% new home purchases and 47% refinancesNew home purchase volume increased 47% in 2020 as compared to 2019. Source: Company documents
Diversified Revenue Stream Twelve Months Ended December 31, 2020 29 Total Revenues$223.9 million Noninterest Income$101.6 million Source: Company documents
Net Interest Income and Margin 30 Net Interest Income & Margin$ in Millions 4Q’20 Highlights Net interest income of $30.4 million, compared to $28.6 million in 4Q’19The increase as compared to 4Q’19 was a result of:$523 million rise in average interest-earnings assets primarily from the WTSB acquisition and PPP loans Partially offset by a decrease in overall rates starting in 1Q’204Q’20 NIM of 3.64% - decrease of 18 bps compared to 3Q’20:17 bps decline in non-PPP loan yield7 bps lower due to sub debt issuance Source: Company documents
Deposit Portfolio 31 Total Deposits$ in Millions 4Q’20 Highlights Total Deposits of $2.97 billion at 4Q’20, an increase of $30.5 million from 3Q’20Cost of interest-bearing deposits declined in 4Q’20 to 45bps from 106bps in 4Q’19Noninterest-bearing deposits represented 30.8% of deposits in 4Q’20, compared to 30.8% in 3Q’20 and 29.3% in 4Q’19 Source: Company documents
Investment Securities 32 4Q’20 Highlights Investment Securities totaled $803.1 million at 4Q’20, an increase of $76.8 million from 3Q’20All municipal bonds are in TexasAll MBS, CMO, and Asset Backed securities are U.S. Government or GSE 4Q’20 Securities Composition $803.1mm Securities & Cash$ in Millions Source: Company documents
Noninterest Expense and Efficiency 33 Noninterest Expense$ in Millions 4Q’20 Highlights Noninterest expense for 4Q’20 increased from 4Q’19 primarily due to an increase of $3.7 million in commissions and higher variable expenses related to strong mortgage activityManagement continues to focus on reducing fixed expenses to drive improved profitability Note: Adjusted Efficiency Ratio is a non-GAAP measure. See appendix for the reconciliation to GAAP Source: Company documents
Balance Sheet Highlights$ in Millions Balance Sheet Growth and Development 34 Tangible Book Value Per Share Note: Tangible book value per share is a non-GAAP measure. See appendix for the reconciliation to GAAP Source: Company documents
Strong Capital Base 35 Tangible Common Equity to Tangible Assets Ratio Common Equity Tier 1 Ratio Tier 1 Capital to Average Assets Ratio Total Capital to Risk-Weighted Assets Ratio Source: Company documents Note: Tangible common equity to tangible assets is a non-GAAP measure. See appendix for the reconciliation to GAAP
Appendix 36
Non-GAAP Financial Measures 37 As of and for the quarter ended December 31,2020 September 30,2020 June 30,2020 March 31,2020 December 31,2019 Efficiency Ratio Noninterest expense $ 36,504 $ 35,993 $ 35,207 $ 34,011 $ 31,714 Net interest income $ 30,365 $ 31,273 $ 30,448 $ 30,199 $ 28,624 Tax equivalent yield adjustment 336 322 290 145 133 Noninterest income 26,172 31,660 24,896 18,875 16,740 Total income $ 56,873 $ 63,255 $ 55,634 $ 49,219 $ 45,497 Efficiency ratio 64.19% 56.90% 63.28% 69.10% 69.71% Noninterest expense $ 36,504 $ 35,993 $ 35,207 $ 34,011 $ 31,714 Less: net loss on sale of securities - - - - (27) Adjusted noninterest expense 36,504 35,993 35,207 34,011 31,687 Total income $ 56,873 $ 63,255 $ 55,634 $ 49,219 $ 45,497 Less: net gain on sale of securities - - - (2,318) - Adjusted total income $ 56,873 $ 63,255 $ 53,634 $ 46,901 $ 45,497 Adjusted efficiency ratio 64.19% 56.90% 63.28% 72.52% 69.65% Unaudited$ in Thousands Pre-Tax, Pre-Provision Income Net income $ 15,924 $ 16,731 $ 5,615 $ 7,083 $ 10,109 Income tax expense 3,968 4,147 1,389 1,746 2,645 Provision for loan losses 141 6,062 13,133 6,234 896 Pre-tax, pre-provision income $ 20,033 $ 26,940 $ 20,137 $ 15,063 $ 13,650 Source: Company documents
Non-GAAP Financial Measures 38 As of December 31,2020 December 31,2019 Tangible common equity Total common stockholders' equity $ 370,048 $ 306,182 Less: goodwill and other intangibles (27,070) (27,389) Tangible common equity $ 342,978 $ 278,793 Tangible assets Total assets $ 3,599,160 $ 3,237,167 Less: goodwill and other intangibles (27,070) (27,389) Tangible assets $ 3,572,090 $ 3,209,778 Shares outstanding 18,076,364 18,036,115 Total stockholders' equity to total assets 10.28% 9.46% Tangible common equity to tangible assets 9.60% 8.69% Book value per share $ 20.47 $ 16.98 Tangible book value per share $ 18.97 $ 15.46 Unaudited$ in Thousands Source: Company documents