South Plains Financial(SPFI) - 2022 Q4 - Annual Report

PART I Item 1. Business SPFI, a bank holding company, operates City Bank, offering diverse financial services across Texas and New Mexico - South Plains Financial, Inc. (SPFI) is a bank holding company headquartered in Lubbock, Texas, with its wholly-owned banking subsidiary, City Bank, serving as one of the largest independent banks in West Texas[17] - The Company provides a wide range of commercial and consumer financial services, including commercial and retail banking, insurance, investment, trust, and mortgage services[17] Key Financials as of December 31, 2022 | Metric | Amount (Millions) | | :--------------------- | :------------------ | | Total Assets | $3,940 | | Gross Loans Held for Investment | $2,750 | | Total Deposits | $3,410 | | Total Shareholders' Equity | $357.0 | - Operates 25 full-service banking locations and 11 loan production offices across seven geographic markets in Texas (Lubbock/South Plains, Dallas, El Paso, Greater Houston, Permian Basin, Bryan/College Station) and Ruidoso, New Mexico[20][22][23][24][25][26][27] - Employs approximately 673 total employees as of December 31, 2022, focusing on competitive compensation, benefits, and employee development to attract and retain talent[32][33] - Maintains disciplined underwriting standards, local market knowledge, and long-term customer relationships to manage credit risk and diversify its loan portfolio[34][35][36] - Securities portfolio is managed primarily for liquidity, collateral for public fund deposits, and secondary interest income, consisting of high-grade government agency, mortgage-backed, and municipal securities[43] - Primary funding sources are diverse deposit products (demand, interest-bearing, savings, CDs), supplemented by borrowings from the Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB), uncollateralized lines of credit, and subordinated debt[45][47] Other Banking Services Revenue and AUM (Year Ended December 31, 2022) | Service | Revenue (Millions) | Assets Under Management (Millions) | | :-------------------- | :----------------- | :--------------------------------- | | Mortgage Banking | $31.4 | N/A (serviced $2.0B mortgages) | | Insurance (Windmark) | $10.6 | N/A | | Trust Services | $2.4 | $411 | | Investment Services | $1.8 | $509.3 | General SPFI is a bank holding company headquartered in Lubbock, Texas, with City Bank serving as a significant independent bank in West Texas - SPFI is a bank holding company, and City Bank is its wholly-owned banking subsidiary, operating as one of the largest independent banks in West Texas[17] - The Company's principal business activities include commercial and retail banking, insurance, investment, trust, and mortgage services[17] Company Financial Snapshot (December 31, 2022) | Metric | Amount (Millions) | | :--------------------- | :------------------ | | Total Assets | $3,940 | | Gross Loans Held for Investment | $2,750 | | Total Deposits | $3,410 | | Total Shareholders' Equity | $357.0 | Market Area The Company operates 25 full-service banking locations and 11 loan production offices across seven distinct geographic markets in Texas and New Mexico, aiming for economic diversification and expansion opportunities - Operates 25 full-service banking locations and 11 loan production offices (mortgage offices) across seven geographic markets[20] - Key markets include Lubbock/South Plains ($2.1 billion deposits), Dallas ($474.1 million deposits), El Paso ($199.7 million deposits), Greater Houston ($37.9 million deposits), Bryan/College Station ($66.4 million deposits), The Permian Basin ($358.7 million deposits), and Ruidoso, New Mexico ($180.8 million deposits)[22][23][24][25][26][27] - The Company believes its exposure to these dynamic and complementary markets provides economic diversification and expansion opportunities[29] Competition The banking and financial services industry is highly competitive, with the Company competing against a wide array of institutions, including larger commercial banks, credit unions, and various financial intermediaries - The banking and financial services industry is highly competitive, with competition from local, regional, and national commercial banks, credit unions, mortgage companies, trust companies, brokerage firms, and financial technology companies[30] - Key competitive factors include interest rates on loans and deposits, prices on fee-based services, office locations, customer service quality, community reputation, and continuity of personnel[31] - The Company competes successfully by offering a broad suite of financial solutions, high-quality customer service, a positive reputation, and long-standing community relationships[31] Human Capital Resources As of December 31, 2022, the Company had 673 employees and prioritizes employee development and retention through competitive salaries, comprehensive benefits, and various employee programs to ensure business success - As of December 31, 2022, the Company had approximately 673 total employees (600 full-time, 73 part-time)[32] - Employee relations are considered satisfactory, with no employees covered by a collective bargaining agreement[32] - The Company offers competitive salaries, benefits (401(k) with company match, healthcare, insurance, wellness programs, paid-time off), and supports employee development and internal promotions to attract and retain talent[33] Lending Activities The Company employs disciplined underwriting standards, local market knowledge, and active credit management to maintain asset quality and diversify its loan portfolio - Adheres to disciplined underwriting standards, emphasizing local market knowledge, long-term customer relationships, and a conservative credit culture to maintain asset quality[34] - Actively manages loan portfolio composition and credit concentrations, with industry and loan product type limits established by loan approval policies[36] - New loans over $5 million or relationships exceeding $20 million are reported to the Board Credit Risk Committee; the Bank's legal lending limit was approximately $103.6 million as of December 31, 2022[37] Investments The Company manages its securities portfolio primarily for liquidity and collateral purposes, with a secondary focus on interest income - Securities portfolio is managed primarily for liquidity (depositor/borrower funding, collateral for public funds) and secondarily for interest income[43] - Investments are high-grade securities, including government agency securities, government guaranteed mortgage-backed securities, and municipal securities[43] - The investment policy is reviewed annually by the Bank's Board, with overall goals established by the Bank's Board and the Investment/Asset Liability Committee[44] Sources of Funds Deposits are the Company's primary funding source, offering various products including demand, interest-bearing, savings, and certificates of deposit - Deposits are the Company's primary and most vital source of funds, offering demand, interest-bearing, savings, and certificate of deposit products[45] - The Company actively gathers noninterest-bearing demand deposit accounts through loan production, customer referrals, marketing, and digital banking[45] - Supplementary funding sources include advances from the FHLB, lines of credit with the FRB and other banks, subordinated debt, and junior subordinated deferrable interest debentures[47] Other Banking Services Beyond traditional banking, the Company offers mortgage banking, insurance, trust, and investment services Mortgage Banking Activities (Year Ended December 31, 2022) | Metric | Amount | | :-------------------------- | :----------------- | | Mortgage Originations | $719.4 million | | Percentage Sold | 89% | | Noninterest Income Contribution | $31.4 million (41% of total) | | Serviced Mortgages (as of Dec 31, 2022) | $2.0 billion | Insurance Activities (Year Ended December 31, 2022) | Metric | Amount | | :-------------------------- | :----------------- | | Total Revenues | $10.6 million | | Total Insurance Premium Base | Over $211 million | | Products Offered | Crop insurance | | Geographic Reach | Texas, Oklahoma, Nebraska, Colorado (general agency in 17 states) | Trust and Investment Services (Year Ended December 31, 2022) | Service | Assets Under Management (Millions) | Fee Income (Millions) | | :-------------------- | :--------------------------------- | :-------------------- | | Trust Services | $411 | $2.4 | | Investment Services | $509.3 | $1.8 | SUPERVISION AND REGULATION The Company and its subsidiary bank are subject to extensive