Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- South Plains Financial Inc (SPFI, Financial) delivered second-quarter diluted earnings per share of $0.66, up from $0.64 in the first quarter of 2024.
- The company experienced robust organic loan growth, particularly in direct energy loans, seasonal agriculture-related loans, and single-family property loans.
- The net interest margin (NIM) expanded to 3.63% in the second quarter, up from 3.56% in the linked quarter.
- The efficiency ratio improved to 66.7% from 67.9% in the previous quarter, indicating better cost management.
- Tangible book value per share increased to $24.15 at June 30, 2024, from $23.56 at March 31, 2024.
Negative Points
- Customer deposits saw a modest reduction as the company focused on managing deposit costs.
- A substandard multi-family property loan in Houston was moved to non-accrual status, increasing non-performing loans to $23.5 million.
- The indirect auto loan portfolio declined by $19.7 million, reflecting cautious credit quality management.
- Non-interest expense rose to $32.6 million in the second quarter, up from $31.9 million in the linked quarter.
- The company expects net interest margin expansion to moderate in the second half of the year due to potential increases in deposit costs.
Q & A Highlights
Q: Is the second-quarter level of fees, particularly bank card fees, a good run rate to build off of for the rest of the year?
A: Steven Crockett, Chief Financial Officer and Treasurer: The bank card fees were slightly elevated in the second quarter due to annual rebates and other factors, amounting to around $400,000. However, other non-interest income line items should remain consistent, except for potential fluctuations in mortgage income.
Q: Can you provide more details on the easing of deposit pressures?
A: Curtis Griffith, Chairman of the Board, Chief Executive Officer: We are seeing fewer advertisements for high-interest CDs and money market accounts, indicating reduced competitive pressures. We are also gradually reducing some deposit rates without significant runoff, maintaining reasonable liquidity.
Q: Could you provide more details on the multifamily loan that moved to non-accrual status?
A: Cory Newsom, Director and President: The multifamily loan was identified as problematic over a year ago and has been closely monitored. It is fully accounted for and is not indicative of broader issues in the multifamily market. The bank has a strong history of identifying and managing such credits early.
Q: What is driving the outsized loan growth in your rural markets, and do you expect this trend to continue?
A: Brent Bates, Chief Credit Officer: Our loan pipelines have been stable, with a mix of smaller average loan balances. Growth in rural markets, particularly in West Texas and the Permian Basin, complements our metro market activities. We expect this trend to continue, supported by strong business in these areas.
Q: How much stock did you repurchase in the quarter, and what is your appetite for share repurchase activity moving forward?
A: Curtis Griffith, Chairman of the Board, Chief Executive Officer: We repurchased a nominal amount of stock, around 12,000 to 13,000 shares, early in the quarter. Given the recent run-up in stock prices, we will be cautious with further buybacks, focusing on maintaining liquidity for growth and other strategic opportunities.
Q: How would a 25 basis point rate cut impact your loan yields?
A: Steven Crockett, Chief Financial Officer and Treasurer: A 25 basis point rate cut would likely be neutral for us. While it may initially reduce interest income slightly more than interest expense, we have deposits tied to indices that would provide some relief. It would take more significant rate cuts to see a meaningful benefit.
Q: Can you discuss the appetite for credit among your customers in the current environment?
A: Brent Bates, Chief Credit Officer: We are seeing steady demand for credit, particularly in ag operating lines and M&A-related strategic transactions. While the volume is less than in past years, it is sustainable and driven by strategic decisions from wealthy families and businesses.
Q: Can you provide more details on the growth in indirect energy loans?
A: Curtis Griffith, Chairman of the Board, Chief Executive Officer: We saw about $15 million in growth, primarily in energy-related service businesses and corporate bridge transactions. These are not direct exploration loans but are related to the energy sector, providing good business opportunities with deposits and fee income.
Q: What initiatives have you implemented to boost deposit growth?
A: Cory Newsom, Director and President: There is no single initiative driving deposit growth. Our success comes from a strong focus on customer service and treasury management. We continue to expand our team and infrastructure, particularly in the Permian Basin, to attract high-quality loan and deposit relationships.
Q: How do you view your capital usage priorities given the strong internal capital build and limited share repurchase activity?
A: Curtis Griffith, Chairman of the Board, Chief Executive Officer: We prioritize maintaining a strong capital position to support organic growth and potential M&A opportunities. We are cautious in the current environment, preferring to have excess capital to navigate uncertainties and take advantage of strategic opportunities as they arise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
