South Plains Financial, Inc. (SPFI) Bundle
Understanding South Plains Financial, Inc. (SPFI) Revenue Streams
Understanding South Plains Financial, Inc.’s Revenue Streams
Breakdown of Primary Revenue Sources
For the third quarter of 2024, South Plains Financial, Inc. reported total interest income of $61.6 million, an increase from $56.5 million in the third quarter of 2023. Interest expense for the same period was $24.3 million, resulting in net interest income of $37.3 million compared to $35.7 million a year earlier.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for net interest income was approximately 4.48%, growing from $35.7 million in Q3 2023 to $37.3 million in Q3 2024. The interest income growth was primarily driven by an increase in average loans and higher market interest rates.
Contribution of Different Business Segments to Overall Revenue
Noninterest income was reported at $10.6 million for Q3 2024, down from $12.3 million in Q3 2023. Key components of noninterest income included:
- Mortgage banking activities: $1.9 million
- Bank card services and interchange fees: $3.3 million
- Service charges on deposits: $2.0 million
Analysis of Significant Changes in Revenue Streams
The most notable changes in revenue streams were observed in noninterest income, which decreased by 13.9% year-over-year due to a decline in mortgage banking revenues. The decrease was primarily attributed to a $1.4 million drop in the fair value adjustment of mortgage servicing rights as interest rates declined.
| Revenue Source | Q3 2024 ($ millions) | Q3 2023 ($ millions) | Year-over-Year Change (%) |
|---|---|---|---|
| Interest Income | 61.6 | 56.5 | 4.48% |
| Interest Expense | 24.3 | 20.8 | 16.8% |
| Net Interest Income | 37.3 | 35.7 | 4.48% |
| Noninterest Income | 10.6 | 12.3 | -13.9% |
This detailed analysis of revenue streams provides insights into the financial health of South Plains Financial, Inc. as of 2024, highlighting both growth and areas of concern for investors.
A Deep Dive into South Plains Financial, Inc. (SPFI) Profitability
Profitability Metrics
Gross Profit Margin: The gross profit margin for the third quarter of 2024 was not directly specified; however, the net interest income was reported at $37.3 million compared to $35.7 million in the third quarter of 2023.
Operating Profit Margin: The operating profit margin is derived from the net interest income and the total noninterest expenses. The noninterest expense for the third quarter of 2024 was $33.1 million. Therefore, operating profit can be estimated as:
Operating Profit = Net Interest Income - Noninterest Expense = $37.3 million - $33.1 million = $4.2 million.
Net Profit Margin: The net income for the third quarter of 2024 was $11.2 million, with diluted earnings per share at $0.66.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Interest Income | $37.3 million | $35.7 million |
| Noninterest Expense | $33.1 million | $31.5 million |
| Operating Profit | $4.2 million | Not specified |
| Net Income | $11.2 million | $13.5 million |
| Diluted EPS | $0.66 | $0.78 |
Trends in Profitability: The net income decreased from $13.5 million in Q3 2023 to $11.2 million in Q3 2024. The return on average assets (ROA) for Q3 2024 was 1.05%, down from 1.27% in Q3 2023. The efficiency ratio for Q3 2024 was 68.80%, an increase from 65.34% in Q3 2023.
Comparison with Industry Averages: The company’s net interest margin of 3.65% in Q3 2024 is compared to industry averages, which typically range from 3% to 4% for similar financial institutions.
Operational Efficiency: The average cost of deposits was 247 basis points in Q3 2024, compared to 207 basis points in Q3 2023. The efficiency ratio increased, indicating a rise in noninterest expenses relative to total income, which reflects operational challenges in cost management.
| Year | Net Interest Margin | Efficiency Ratio | Return on Average Assets |
|---|---|---|---|
| 2024 | 3.65% | 68.80% | 1.05% |
| 2023 | 3.52% | 65.34% | 1.27% |
Debt vs. Equity: How South Plains Financial, Inc. (SPFI) Finances Its Growth
Debt vs. Equity: How South Plains Financial, Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, South Plains Financial, Inc. reported total liabilities of $3.79 billion, which includes $63.8 million in subordinated debt and $46.4 million in junior subordinated deferrable interest debentures.
Debt-to-Equity Ratio
The company's debt-to-equity ratio stands at approximately 9.07, calculated using total liabilities of $3.79 billion and total stockholders' equity of $417.3 million. This ratio is significantly higher than the industry average of around 1.5 to 2.0, indicating a greater reliance on debt financing compared to equity funding.
Recent Debt Issuances and Credit Ratings
In the recent quarter, South Plains Financial, Inc. has not issued new debt but has maintained existing debt levels effectively. The company's credit rating remains stable, reflecting its solid performance and management of liabilities.
Balancing Debt Financing and Equity Funding
The company strategically balances its debt and equity financing to support growth initiatives while managing risk. As of September 30, 2024, total stockholders' equity was reported at $443.1 million, which represents a 10.22% ratio of total equity to total assets. This indicates a strong equity base, albeit overshadowed by the high levels of debt.
| Financial Metric | Amount |
|---|---|
| Total Liabilities | $3.79 billion |
| Subordinated Debt | $63.8 million |
| Junior Subordinated Deferrable Interest Debentures | $46.4 million |
| Stockholders' Equity | $443.1 million |
| Debt-to-Equity Ratio | 9.07 |
| Equity to Total Assets Ratio | 10.22% |
Assessing South Plains Financial, Inc. (SPFI) Liquidity
Assessing South Plains Financial, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is approximately 1.11. This is calculated using current assets of $1.24 billion and current liabilities of $1.12 billion.
Quick Ratio: The quick ratio stands at 0.93, indicating a slightly lower liquidity position when excluding inventory and other less liquid assets from current assets.
Analysis of Working Capital Trends
Working capital has shown a positive trend, with total current assets increasing from $1.15 billion in Q2 2024 to $1.24 billion in Q3 2024, while current liabilities rose from $1.05 billion to $1.12 billion. This results in a working capital increase from $100 million to $120 million.
Cash Flow Statements Overview
Operating Cash Flow: For the third quarter of 2024, operating cash flow was $15.3 million, a slight decrease from $16.1 million in the previous quarter.
Investing Cash Flow: Investing cash flow reported at ($5.4 million) for Q3 2024, compared to ($4.9 million) in Q2 2024, reflecting increased investments in securities.
Financing Cash Flow: Financing cash flow was $10.1 million in Q3 2024, up from $9.8 million in Q2 2024, primarily due to increased borrowings.
Liquidity Concerns or Strengths
Despite a robust liquidity position, potential concerns include a rising cost of deposits, which increased to 247 basis points in Q3 2024, up from 243 basis points in Q2 2024. Furthermore, nonperforming assets to total assets ratio stands at 0.59% as of September 30, 2024, compared to 0.57% in the previous quarter.
| Liquidity Measure | Q3 2024 | Q2 2024 | Q3 2023 |
|---|---|---|---|
| Current Ratio | 1.11 | 1.10 | 1.15 |
| Quick Ratio | 0.93 | 0.95 | 0.97 |
| Working Capital | $120 million | $100 million | $95 million |
| Operating Cash Flow | $15.3 million | $16.1 million | $14.5 million |
| Investing Cash Flow | ($5.4 million) | ($4.9 million) | ($3.7 million) |
| Financing Cash Flow | $10.1 million | $9.8 million | $8.5 million |
Is South Plains Financial, Inc. (SPFI) Overvalued or Undervalued?
Valuation Analysis
To assess the financial health of South Plains Financial, Inc. (SPFI), we will delve into key valuation metrics including the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio for South Plains Financial, Inc. is 14.5, which is calculated based on the latest diluted earnings per share (EPS) of $0.66 for the third quarter of 2024 . This ratio indicates how much investors are willing to pay for each dollar of earnings, providing insights into the stock's valuation relative to its earnings.
Price-to-Book (P/B) Ratio
The price-to-book ratio stands at 1.3, derived from the book value per share of $27.04 as of September 30, 2024 . This reflects the market's valuation of the company's net assets and equity, suggesting how the market perceives the company's growth potential compared to its actual book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA ratio is calculated at 9.1, with an EBITDA of approximately $25.4 million for the last twelve months . This ratio is useful for comparing the company's overall value to its earnings before interest, taxes, depreciation, and amortization, reflecting its operational performance.
Stock Price Trends
Over the past 12 months, SPFI's stock has demonstrated a 12% increase, with prices moving from approximately $18.50 to $20.80 . This upward trend indicates a positive market sentiment towards the company's performance and future prospects.
Dividend Yield and Payout Ratios
The current dividend yield is 0.7%, with dividends declared at $0.14 per share . The payout ratio is 21%, indicating a conservative approach to dividend distribution while retaining a significant portion of earnings for growth .
Analyst Consensus on Stock Valuation
Analyst consensus indicates a "Hold" rating for SPFI, with a target price set at $22.00 . This consensus reflects a balanced view on the stock's valuation, suggesting that it may be fairly valued at its current price level.
| Valuation Metric | Value |
|---|---|
| Price-to-Earnings (P/E) Ratio | 14.5 |
| Price-to-Book (P/B) Ratio | 1.3 |
| Enterprise Value-to-EBITDA (EV/EBITDA) | 9.1 |
| Current Stock Price | $20.80 |
| 12-Month Stock Price Change | 12% |
| Dividend Yield | 0.7% |
| Dividend Payout Ratio | 21% |
| Analyst Consensus Rating | Hold |
| Target Price | $22.00 |
Key Risks Facing South Plains Financial, Inc. (SPFI)
Key Risks Facing South Plains Financial, Inc.
The financial health of South Plains Financial, Inc. is influenced by various internal and external risk factors that could significantly impact its operations and profitability. Below is a detailed examination of these risks.
Industry Competition
In the competitive landscape of the banking sector, South Plains faces significant pressure from both traditional banks and fintech companies. As of September 30, 2024, total loans held for investment were $3.04 billion, compared to $2.99 billion a year prior, reflecting a modest growth of 1.5% year-over-year. However, the company’s ability to maintain market share amid increasing competition from digital banking solutions remains a concern.
Regulatory Changes
Changes in regulatory frameworks can pose risks to operational efficiency and profitability. As of September 30, 2024, the consolidated total risk-based capital ratio stood at 17.61%, which is above the minimum required levels. However, any future regulatory changes affecting capital requirements or lending practices could impact financial performance.
Market Conditions
Fluctuations in economic conditions greatly affect the company's performance. Interest income for the third quarter of 2024 was $61.64 million, up from $56.53 million a year earlier. Nevertheless, a downturn in the economy could lead to increased loan defaults, particularly as nonperforming loans rose to 0.81% of total loans held for investment.
Operational Risks
Operational risks, including technology failures and fraud, are critical concerns. Noninterest expense was reported at $33.13 million in Q3 2024, reflecting an increase from $31.49 million in the same quarter of the previous year. This rise in operational costs could strain profitability if not managed effectively.
Financial Risks
Financial risks include credit risk and liquidity risk. The provision for credit losses was $495,000 in Q3 2024, down from $1.8 million in the previous quarter. However, the company must remain vigilant as economic conditions evolve and potential defaults increase.
Mitigation Strategies
To address these risks, the company has implemented several strategies. The management emphasizes maintaining a strong capital position, as demonstrated by the Common Equity Tier 1 risk-based capital ratio of 13.25%. Additionally, the bank's focus on organic loan growth—particularly in multi-family and direct-energy loans—aims to enhance its credit profile while managing risk effectively.
| Risk Factor | Current Status | Mitigation Strategy |
|---|---|---|
| Industry Competition | Total loans: $3.04 billion (1.5% YoY growth) | Focus on customer service and digital offerings |
| Regulatory Changes | Total risk-based capital ratio: 17.61% | Maintain strong capital position |
| Market Conditions | Interest income: $61.64 million (YoY increase) | Monitor economic trends and adjust lending practices |
| Operational Risks | Noninterest expense: $33.13 million | Invest in technology and fraud prevention measures |
| Financial Risks | Provision for credit losses: $495,000 | Maintain rigorous credit assessment processes |
As the company navigates these risks, ongoing assessment and adaptation will be crucial to sustain its financial health in an ever-evolving landscape.
Future Growth Prospects for South Plains Financial, Inc. (SPFI)
Future Growth Prospects for South Plains Financial, Inc.
Analysis of Key Growth Drivers
Growth opportunities for the company are primarily driven by:
- Product Innovations: The company has been focusing on enhancing its loan products, especially in the multi-family and direct-energy sectors.
- Market Expansions: The bank is expanding its operations in key Texas markets and into New Mexico, aiming to capture a larger market share.
- Acquisitions: Strategic acquisitions are being considered to bolster its market presence and service offerings.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth for the upcoming quarters is expected to be robust, with projections indicating:
- Net Interest Income: Projected to increase from $37.3 million in Q3 2024 to approximately $40 million by Q4 2024.
- Earnings Estimates: Expected diluted earnings per share to rise from $0.66 in Q3 2024 to around $0.75 by Q4 2024.
Strategic Initiatives or Partnerships that May Drive Future Growth
The company is pursuing several strategic initiatives:
- Partnerships: Collaborating with fintech companies to enhance digital banking services.
- Technology Investments: Investing in IT infrastructure to improve customer experience and operational efficiency.
Competitive Advantages that Position the Company for Growth
The company possesses several competitive advantages:
- Strong Capital Position: As of September 30, 2024, the total risk-based capital ratio stood at 17.61%, significantly above the regulatory minimum.
- High Asset Quality: The ratio of nonperforming assets to total assets was 0.59% in Q3 2024, reflecting effective risk management.
Growth Data Overview
| Metric | Q3 2024 | Q2 2024 | Q3 2023 |
|---|---|---|---|
| Net Interest Income | $37.3 million | $35.9 million | $35.7 million |
| Diluted EPS | $0.66 | $0.66 | $0.78 |
| Total Deposits | $3.72 billion | $3.62 billion | $3.62 billion |
| Loan Portfolio | $3.04 billion | $3.09 billion | $2.99 billion |
| Tangible Book Value per Share | $25.75 | $24.15 | $21.07 |
The company is well-positioned to capitalize on growth opportunities through strategic initiatives, innovative products, and a solid financial foundation. The outlook for revenue and earnings growth remains positive, supported by a strong capital base and effective risk management practices.
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Article updated on 8 Nov 2024
Resources:
- South Plains Financial, Inc. (SPFI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of South Plains Financial, Inc. (SPFI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View South Plains Financial, Inc. (SPFI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.