00:07 Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Inc. Fourth Quarter and Full-Year 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. 00:31 I would now like to turn the call over to Mr. Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead, sir.

00:42 Thank you, operator, and good afternoon, everyone. We appreciate your participation in our fourth quarter and full-year 2021 earnings conference call. With me here today are Curtis Griffith, our Chairman and Chief Executive Officer; and Cory Newsom, our President. As a reminder, a replay of this call will be available on our website within two hours of the conclusion of the call until February 10, 2022. Additionally, a slide deck presentation to complement today's discussion is available on the News and Events section of our website. 01:15 Before we begin, let me remind everyone that this call may contain forward-looking statements that are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statement in our earnings press release that was issued this afternoon and on Slide 2 of the slide deck presentation available on our website. 01:40 All comments made during today's call are subject to those Safe Harbor statements. Any forward looking statements presented herein are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. 01:57 Additionally, during today's call, we may discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can also be found in our earnings release and on Slide 19 in the slide deck presentation. 02:16 At this point, I'll turn the call over to Curtis.

02:19 Thank you, Steve, and good afternoon. On today's call, I will briefly review the highlights of our fourth quarter and full-year 2021 results. Cory will provide an update on our efforts to expand our lending team, which is contributing to our strong organic loan growth, as well as discuss how we are managing the expected decline in our mortgage business as we focus on growing the company through the cycle. Steve will then conclude with a more detailed review of our fourth quarter 2021 results. 02:51 Looking back on 2021, we believe our team delivered another year of strong financial results that exceeded our expectations and has firmly positioned South Plains for continued success in the year ahead. The culture that we have [fostered] [ph] is contributing to our results and can be seen in our employees commitment to our customers. 03:12 We believe our culture also differentiates South Plains in our local markets and is a key factor in our ability to recruit high quality talent to our team. Another differentiating factor is a significant employee and insider ownership of the company, which stood at almost 40% of shares outstanding at year-end. 03:33 We are all highly incentivized to do what is right for our customers, the company, and our shareholders and I would like to thank our employees for their hard work. I continue to be very proud of their efforts. 03:46 Turning to our results, there are five key points that I would like you to take away this afternoon. First, we grew our loan portfolio 9.7% year-over-year in 2021, exceeding our goal of mid-single-digit growth. Strength in our local Texas markets combined with the successful execution of our plan to grow our lending team contributed to these results. 04:10 Second, we are approximately halfway to…

10:03 Thank you, Curtis and good afternoon everyone. Starting with our loan portfolio on Slide 5, loans held for investment at the end of the fourth quarter of 2021 were $2.44 billion, which is an increase of $8.5 million from the third quarter of 2021. 10:19 As Curtis touched on, we experienced strong organic loan growth again during the fourth quarter of 2021, which remains relationship focused and occurred in a majority of loan segments, with the largest volume in growth in commercial land development loans, commercial retail loans, and direct energy loans. This strength however was largely offset by PPP loan forgiveness and repayments, seasonal repayments in our agricultural portfolio, and the early payoff of two hotel loans and one large classified commercial credit. 10:49 This high level of paydown activity [match] [ph] the strong underlying loan production that we experienced through the fourth quarter of 2021. Importantly, our lending team has maintained their path lines at healthy levels, while our newly hired lenders are quickly ramping their portfolios. 11:05 We previously noted that we strive to have each newly hired lender to reach profitability by the six month mark. We believe that we've achieved that with our plan to date. Looking forward, we remain confident on our goal of adding 20 lenders to our 60 lender team over a two-year timeframe as we focus on delivering sustainable organic growth and remain confident in our goal of delivering mid-to-high single-digit loan growth in 2022. 11:30 While we remain focused on growth, we also remain disciplined on credit, and will not compromise our underwriting standards to grow our loan portfolio. We believe our credit culture remains a key differentiator for South Plains as we consistently and aggressively review our loan portfolio presides the potential issues and seek to remove those…

14:06 Thank you, Cory. Starting on Slide 10, net interest income was $31.4 million for the fourth quarter of 2021, as compared to $31.2 million for the third quarter of 2021. The expansion since the third quarter of 2021 was primarily due to an increase of $264,000 in loan interest income as a result of the growth of $66.1 million in average loans outstanding, partially offset by a decrease of 9 basis points in the yield on loans, during the fourth quarter of 2021. 14:39 Looking forward, we believe that we are well positioned for our net interest income to benefit from a rise in interest rates if the Fed were to begin raising rates through the year, as is currently anticipated. We recognized $1.0 million in PPP fee income has an adjustment to interest income, which included accelerated income on PPP loans forgiven by the SBA during the fourth quarter of 2021. 15:06 At December 31, 2021, the company had $1.9 million in deferred PPP fees, the majority of which are expected to be recognized as PPP loans continue to be forgiven by the SBA or repaid over the next several quarters. 15:21 Our net interest margin experienced an 8 basis point decrease to 3.50% in the fourth quarter of 2021, as compared to 3.58% in the third quarter of 2021. The contraction on our net interest margin was primarily due to the 9 basis point decline in our average yield on loans. 15:42 Our average cost of deposits declined 2 basis points to 23 basis points in the fourth quarter of 2021, as compared to 25 basis points in the third quarter of 2021. Continuing on Slide 11 deposits increased in the fourth quarter of 2021 to $3.34 billion, an increase of $129 million [or 4%]] from September…

19:34 Thank you, Steve. To conclude, our focus as a management team is to increase the value of the company through having steady balance sheet growth remaining vigilant on credit quality, growing our organic loans, creating operational efficiencies, and returning a steady stream of capital to our shareholders through our dividend. 19:57 We believe our 2021 results are a testament to our success, and I'm very proud of our accomplishments again this year, as well as the consistent results that we have delivered since our IPO, which can be seen in our tangible book value growth, as well as our improved returns. 20:14 At the end of the fourth quarter of 2021, our tangible book value per share was $21.51, compared to $18.97 at the end of 2020, and $15.46 at the end of 2019. Likewise, our return on average assets for the full-year of 2021 was 1.56%, compared to 1.31% for the full-year 2020 and 1.04% for the full-year 2019. 20:48 Looking forward, we have the foundation in place, which positions our team for continued success through 2022 and beyond. 20:56 Thank you again for your time today. Operator, please open the line for any questions.

21:02 Thank you. [Operator Instructions] Our first question comes from the line of Brady Gailey with KBW. Please proceed with your question.

21:43 Hey, thanks. Good afternoon, guys.

21:45 Hey, Brady.

21:48 So, you mentioned that mortgage revenue was about 23% in the fourth quarter, longer term, you think that's 10% to 15%, as you look to 2022, did you think mortgage gets down in that 10% to 15% range or do you think you still over earn on mortgage a little bit in 2022 as well?

22:14 Hi, Brady. This is Cory. I guess I kind of want to clarify. We talked about the 10% to 15% on mortgage. Our goal is to grow the rest of the bank to a point that mortgage only represents about 10% to 15% of where we are. We think we're probably looking closer to 20 this year on mortgage. I mean, our demand is still good and we feel really confident the first half of the year. There's still a lot of demand and we think a lot of people are trying to make sure they get – try to get their stuff locked in before they do see [much] [ph] increase in rates, but we're still seeing good demand. 22:49 And I mean, here's the thing that we've always got to remember about where we are. We’re in Texas and our economy is so good. We're seeing some really good happenings around that.

23:00 Yes, let me just pitch in out there real quick. Realize, we're pretty active in the Dallas Fort Worth, and the [indiscernible], I think we are 120,000 people in this past year and it's not slowing down, it's probably going to accelerate. Austin, gaining nearly 200 people every day moving into that market. Houston is still growing fast. Lubbock is expected to grow roughly 20,000 people in our little down by 2025. 23:28 So, you just didn’t see this demand for housing in Texas. So, yeah, the refi business is slowing and we expect it to, but we've got a great group in place and we think we're still going to do a lot of good mortgage business on the home purchases. So, like Cory said, the long-term goal is let's get down to about 10% to 15% depending of where we are in the cycle and all that, but that's just because the rest of the bank gets bigger not that mortgage income drops that far.

23:59 Alright. That's helpful. And then on the buyback, you all were active again in the fourth quarter. I think if you look at the year, you repurchased about 2% of the company. I mean, the stock is higher now, which isn't a bad thing, but it does make the buyback a little less advantageous. So, how do you think about the buyback going forward. You're seeing good growth, your stock price is a little higher, should we expect to see you guys continue to be active on the buyback in 2022?

24:32 I think you will. We're going to let our board look and we discuss it every quarter. And we're going to make a decision on just how active we think we need to be based on how we feel our stocks being valued in the marketplace, and currently, yes, I think you're going to see us still active in buying stock.

24:52 Okay. And then I heard Steve, when he was talking about the expense base, talked about the kind of the expense base modestly rising. What does that mean? Does that mean, kind of low-to-mid single-digit level increase as we look into 2022 versus 2021?

25:14 Yes. I think you are right. Obviously, a lot of it depends on what the mortgage volume does, how much that comes back because so much of the – or a large percentage of our personnel cost is a variable number with mortgage. So, we would expect to see that moderate some as the overall volume comes back, but kind of, excluding that piece of it, yes, your range there is a good range.

25:51 And then just lastly for me, you guys mentioned the $65 million of headwind you saw from the loan portfolio in the fourth quarter that you guys overcame. Do you expect to see any notable headwind in 2022 from larger loans paying off or CRE paydowns or is there anything expected on that front this year?

26:14 Well, I think we'd probably naïve to not think there would be. I mean, if you look at –with the anticipation of some rate increases and things like that, we know there's going to be some headwinds. The thing is, there's – our demand, our platforms are solid. And we're still seeing so much money set on the sidelines trying to go to work. And if you couple that with the talent we already have in this company and the additional hires that we continue to make, we think that we're prepared for those headwinds, but we definitely think there's going to be some.

26:47 Okay, great. Thank you guys.

26:50 Okay. Appreciate it.

26:54 Your next question comes from the line of Brad Milsaps with Piper Sandler. Please proceed with your question.

27:02 Hey, good afternoon guys.

27:04 Hey. How are you?

27:07 Good. Just maybe want to add some questions around the margin? You guys – your loan yields are still relatively compared to others up around [480] [ph] or so. Just kind of curious, how you think your loan book would respond to a 25 basis point increase in the Fed fund rate? Can you just remind us what percentage of your loan portfolio would reprice immediately with any change in that index rate?

27:41 Yes. So, our – we're at about 20% – 20% I believe or so would reprice immediately. Overall, and I think we have this in our 10-Q, normally, but we're just slightly asset sensitive on the whole as far as assets and liability, looking at it altogether. So, we do think overall, we are positioned to benefit from the rising rates. 28:17 So, loan book while there's not quite as much, maybe as some others that might reprice immediately, we think we're still in good shape on how that will work along with how we would have to reprice any of the deposits.

28:35 Keep in mind we've got about 30% of our deposits are in demand accounts. So, we think that will be beneficial. We think that we're going to lag in rising some of the deposit rates as we go.

28:48 We've got so much liquidity on the books right now, but we're just not going to be – we're certainly not going to be a market leader out there on deposit rate increases. We think we can lag a good bid and if we lose a few deposits that's not that big a problem bluntly.

29:06 Yeah, sure. I wanted to follow-up on the deposits. I know you guys are on a big CD bank, but those costs are still kind of stubbornly high. I think it was 119 basis points during the fourth quarter. Are those just kind of here to stay and it's just going to kind of be a slow bleed, I assume those are all longer [[data type CDs] [ph].

29:29 Yes. Those were some that primarily we had done couple of years back when rates were higher, some folks got some rates locked in. You should be seeing that number. It is coming down every quarter. So, nothing obviously going in at very high rates on anything new coming in, but yes, there's still couple – a year or two left on some of those higher yielding CDs.

30:03 Got it. And maybe just one final kind of minor question from me. Steve, I noticed that the – in fee income, the card interchange fees jumped up $400,000 or $500,000 linked quarter. Just curious, is that just you guys, your markets kind of getting back to normal, anything in there that's, sort of, wouldn't be sort of run rate. 30:27 I'm just kind of curious, kind of what caused that big leap, or is it just kind of Christmas shopping season something like that, just was curious if that's kind of a good number going forward?

30:38 Yes. So, it usually does end up being a little bit higher in Q4, but we did have, and I think it's in the press release if you look in that section, I think I've got the number. I have it here – I'll turn over here, but we had some performance bonuses that we got in our contract that came-in in the fourth quarter. So, there is kind of a non-recurring item in there. 31:09 I think it 434,000, that's how much it went up, but that's the biggest – the biggest piece of that increase was just, kind of a non-recurring item. However, the overall trend is that those numbers are still increasing. I don't expect it to see that level going forward each quarter.

31:36 Okay, thanks. I apologize. I must have missed that on my first time through the release, but appreciate the color. Thank you.

31:44 No, problem. Thanks, Brent.

31:46 Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mr. Curtis Griffith for closing remarks.

31:55 Well we thank everyone for being on the call today, and we're certainly proud of the results that we achieved during 2021. 2022 will bring some new challenges. We're sure, we hope and pray that the pandemic subsides and we can start returning to a lot more normalcy across all of our markets and all around the world too. 32:17 So, right now, we're just proud of our employees and the hard work they put in and we're excited to replace another year and we think we can achieve some excellent results with everything we've got in our line right now. And just ask everyone to continue to be active out there and to stay involved and reach out to us, if you have any questions on anything regarding our performance here at South Plains Financial. Operator, thank you.

32:45 This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.