South Plains Financial | research notes

South Plains Financial: A Leading Financial Partner for West Texas and Eastern New Mexico

South Plains Financial, Inc. is a full-service financial services company headquartered in Lubbock, Texas. With a legacy spanning over 60 years, the company has established itself as a trusted and respected provider of a comprehensive suite of financial products and services.

Humble Beginnings and Steady Growth

South Plains Financial was founded in 1958 as the First Federal Savings and Loan Association of Lubbock. Through strategic acquisitions and organic growth, the company has evolved into a diversified financial institution with a strong presence throughout West Texas and Eastern New Mexico. Today, South Plains Financial operates 21 banking centers and employs over 300 dedicated professionals.

Comprehensive Financial Services

South Plains Financial offers a wide range of financial services to meet the diverse needs of its customers, including:

• Personal Banking: Checking and savings accounts, CDs, money market accounts, and personal loans
• Business Banking: Commercial lending, business checking and savings accounts, and cash management services
• Mortgage Lending: Conventional and government-backed mortgages, home equity loans, and refinancing
• Investment Services: Investment management, financial planning, and retirement planning
• Trust Services: Personal and corporate trusts, estate planning, and wealth management

Commitment to Community

South Plains Financial is deeply committed to supporting the communities it serves. The company actively participates in local organizations and charitable initiatives aimed at improving the well-being of the region. Through its financial literacy programs and partnerships with local schools, South Plains Financial strives to empower individuals and families to make informed financial decisions.

Financial Strength and Stability

South Plains Financial has consistently maintained a strong financial position. The company has received top ratings from independent credit rating agencies, reflecting its sound management practices and ample capital base. South Plains Financial is also a member of the Federal Deposit Insurance Corporation (FDIC), ensuring that customer deposits are safe and secure.

Dedicated Customer Service

At South Plains Financial, customer service is a top priority. The company's experienced professionals are committed to providing personalized attention and tailored financial solutions that meet the unique needs of each customer. Whether you're a first-time homebuyer, a small business owner, or an individual seeking financial guidance, South Plains Financial has the expertise and resources to help you achieve your financial goals.

A Trusted Financial Partner for Generations

For over six decades, South Plains Financial has been a trusted financial partner for countless individuals, families, and businesses throughout West Texas and Eastern New Mexico. The company's commitment to providing exceptional financial services, supporting the community, and maintaining financial strength has earned it a reputation as a leading provider of financial solutions in the region.

Business Model of South Plains Financial

South Plains Financial is a community-focused bank holding company that provides a range of financial services to individuals and businesses in Texas. Its business model is centered around four core pillars:

• Banking: Core banking services, including deposit accounts, loans, and treasury management.
• Wealth Management: Investment and wealth advisory services for individuals and institutions.
• Insurance: Property, casualty, and life insurance products.
• Mortgage: Mortgage origination, servicing, and warehouse lending.

South Plains Financial operates a network of branches and loan production offices throughout Texas, with a focus on underbanked and rural communities. The company also has a correspondent banking division that serves community banks in the region.

Advantages over Competitors

South Plains Financial has several advantages over its competitors:

• Community Focus: As a community bank, South Plains Financial is deeply rooted in the communities it serves. It has a strong understanding of local market conditions and the needs of its customers.
• Diversified Revenue Streams: The company's diversified business lines provide a stable source of revenue, reducing its reliance on any single product or service.
• Strong Regulatory Compliance: South Plains Financial maintains a strong focus on regulatory compliance and ethical banking practices.
• Exceptional Customer Service: The company's dedicated staff is known for providing personalized service and building long-term relationships with customers.
• Local Decision-Making: South Plains Financial's decentralized decision-making process allows it to respond quickly to local market conditions and provide tailored solutions for its customers.
• Technology Investments: The company invests heavily in technology to enhance its services and streamline operations, providing a competitive advantage in digital banking.
• Correspondent Banking Division: South Plains Financial's correspondent banking division provides specialized services to community banks, which helps them grow and compete effectively.

By leveraging these advantages, South Plains Financial has established a strong position in the Texas banking market and continues to expand its operations while remaining committed to its community-focused mission.

Company Outlook: South Plains Financial, Inc.

Overview

South Plains Financial, Inc. (SPFI) is a bank holding company and the parent company of First United Bank. First United Bank is a community bank with a branch network primarily in Texas and New Mexico. As of December 31, 2022, the company had total assets of $14.3 billion, total deposits of $11.7 billion, and total loans of $10.7 billion.

Financial Performance

SPFI has consistently delivered strong financial performance over the past several years. In 2022, the company reported net income of $230.1 million, an increase of 16.3% over the previous year. The company's return on assets (ROA) and return on equity (ROE) were 1.61% and 13.15%, respectively, both above industry averages.

Earnings Outlook

Analysts expect SPFI to continue its growth trajectory in the coming years. For 2023, consensus estimates project net income of $247.7 million, an increase of 7.6%. The company is expected to benefit from rising interest rates, which will boost its net interest margin (NIM).

Asset Quality

SPFI's asset quality remains sound. As of December 31, 2022, the company's non-performing assets (NPAs) were 0.25% of total assets, well below industry averages. The company also maintains a strong loan-to-deposit ratio of 91.3%.

Capital Position

SPFI has a strong capital position. The company's capital ratios meet or exceed regulatory requirements. As of December 31, 2022, the company's Tier 1 capital ratio was 12.4% and its total capital ratio was 14.6%.

Dividend Outlook

SPFI has a consistent dividend payment history. In 2022, the company increased its quarterly dividend by 5.3%. The current annual dividend yield of 3.3% is above the industry average.

Market Position

SPFI operates in a highly competitive banking market in Texas and New Mexico. However, the company has established a strong market position through its focus on customer service and its local presence.

Growth Strategy

SPFI plans to continue growing both organically and through acquisitions. The company is targeting expansion in key markets in Texas and New Mexico. Additionally, the company is exploring opportunities to grow its non-interest income streams, such as wealth management and investment services.

Risks

SPFI faces a number of risks, including:

• Interest rate risk: Rising interest rates could pressure the company's NIM.
• Economic downturn: A recession could lead to increased loan losses and reduced loan demand.
• Competition: The company faces significant competition from other banks and non-bank lenders.
• Regulatory risk: Changes in regulations could impact the company's operations and profitability.

Overall Outlook

South Plains Financial is a well-positioned bank holding company with a strong market position, sound financial performance, and a solid capital position. The company is expected to continue its growth trajectory in the coming years. However, investors should be aware of the risks associated with investing in the banking industry.

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South Plains Financial, Inc.

Origins:

• Founded in 1983 as South Plains Financial Services, Inc., a real estate-related consulting firm.
• Acquired First National Bank of Littlefield, Texas in 1999, marking its entry into banking.

Growth and Expansion:

• 2001: Acquired Citizens National Bank of Lubbock, Texas.
• 2003: Opened its first de novo branch in Amarillo, Texas.
• 2007: Acquired First National Bank of Hereford, Texas.
• 2008: Expanded into Oklahoma by acquiring Western Heritage Bank of Altus, Oklahoma.
• 2011: Acquired the assets and deposits of Bank of Boerne, Texas.

Recent Developments:

• 2013: Changed its name to South Plains Financial, Inc.
• 2014: Acquired the assets and deposits of Citizens Bank of Texas in Midway, Texas.
• 2018: Announced a merger agreement with FirstCapital Bank N.A.
• 2019: Merger with FirstCapital Bank completed, creating a combined entity with over $10 billion in assets.

Current Operations:

• South Plains Financial operates as a regional bank holding company with 51 branches in Texas and Oklahoma.
• It offers a range of banking services, including commercial and consumer lending, deposit accounts, and wealth management.

Leadership:

• CEO: James P. Chapman
• President and COO: Steve Meyer

Financial Performance:

• As of June 30, 2023, South Plains Financial reported total assets of $11.9 billion, total deposits of $9.2 billion, and net income of $199.8 million.

Key Competitors:

• Texas Capital Bancshares, Inc.
• PlainsCapital Corporation
• First Financial Bankshares, Inc.

Last Three Years

• 2022:

  • Completed the acquisition of FirstBank Southwest.
  • Increased quarterly cash dividend by 10%.
  • Declared a special dividend of $0.50 per share.

• 2021:

  • Reported record net income and earnings per share.
  • Increased quarterly cash dividend by 7%.
  • Initiated a share repurchase program.

• 2020:

  • Navigated the COVID-19 pandemic with strong liquidity and capital levels.
  • Maintained a focus on digital banking and technology.
  • Completed the acquisition of two banks in Texas and New Mexico.

Recent Timelines

• January 2023:
  • Announced plans to acquire Brazos Valley Bank.
• October 2022:
  • Completed the acquisition of FirstBank Southwest.
• July 2022:
  • Increased quarterly cash dividend by 10%.
• May 2022:
  • Declared a special dividend of $0.50 per share.
• February 2022:
  • Reported record quarterly net income.
• September 2021:
  • Increased quarterly cash dividend by 7%.
• July 2021:
  • Initiated a share repurchase program.
• March 2021:
  • Reported record net income for the first quarter.
• December 2020:
  • Completed the acquisition of two banks in Texas and New Mexico.

5-Star Review: Exceptional Financial Services at South Plains Financial

As a long-standing client of South Plains Financial, I am thrilled to share my unwavering positive experience with this exceptional financial institution. From the moment I first walked through their doors, I was greeted with warmth, professionalism, and a genuine desire to understand my financial goals.

Personalized Advisory Services:

The advisors at South Plains Financial take a personalized approach to financial planning. They diligently analyze my unique circumstances and provide tailored advice that aligns with my aspirations and risk tolerance. Whether it's retirement planning, wealth management, or business succession, they have consistently guided me with expertise and foresight.

Innovative Products and Services:

South Plains Financial offers a comprehensive suite of financial products and services that meet the evolving needs of their clients. From competitive lending rates to innovative investment strategies, they provide a one-stop solution for managing my finances effectively. The online banking platform is user-friendly and allows me to stay informed about my accounts and transactions from anywhere.

Exceptional Customer Service:

The customer service at South Plains Financial is second to none. Their staff is always friendly, responsive, and goes the extra mile to ensure my satisfaction. Whether I need assistance with account questions, loan applications, or financial advice, they provide prompt and courteous support.

Community Involvement:

Beyond their financial services, South Plains Financial actively engages in community involvement. They support local businesses, charities, and educational programs. Their commitment to giving back demonstrates their genuine concern for the well-being of their clients and the community as a whole.

Conclusion:

In summary, South Plains Financial has exceeded my expectations in every aspect of financial services. Their personalized advisory services, innovative products and services, exceptional customer care, and community involvement have made them an invaluable partner in my financial journey. I highly recommend them to anyone seeking a trusted and capable financial institution.

Unlock Your Financial Potential with South Plains Financial

Navigating the intricate world of finance can be daunting, but with South Plains Financial, you'll have a trusted guide by your side. Our comprehensive website offers a wealth of resources, tools, and expert advice to help you achieve your financial goals.

Personalized Financial Advice

Schedule a complimentary consultation with one of our experienced financial advisors. They will work closely with you to understand your unique needs and develop a tailored plan that aligns with your financial aspirations.

Investment Solutions

Explore a wide range of investment options that cater to your risk tolerance and long-term objectives. From stocks and bonds to mutual funds and ETFs, we offer a diverse portfolio of investment vehicles to help you grow your wealth.

Retirement Planning

Prepare for a secure and fulfilling retirement. We provide comprehensive retirement planning services to help you maximize your savings, minimize taxes, and ensure a comfortable post-work life.

Financial Education

Empower yourself with financial knowledge. Our website features educational articles, videos, and interactive tools that will help you make informed decisions about your finances.

Online Account Management

Manage your accounts conveniently from anywhere, anytime. Our secure online banking platform allows you to track your activity, transfer funds, and monitor your investments.

Dedicated Customer Support

Our friendly and knowledgeable customer service team is available to assist you with any questions or concerns you may have. We believe in providing exceptional support to ensure your financial journey is seamless.

Join the South Plains Financial Family

Don't wait any longer to take control of your finances. Visit our website at www.southplainsfinancial.com to explore our services, schedule a consultation, and start building a brighter financial future today.

South Plains Financial's Main Supplier

South Plains Financial, Inc. (SPFI) is a bank holding company with headquarters in Lubbock, Texas. Its primary subsidiary is City Bank.

SPFI's main supplier is Fiserv, Inc., a global provider of financial services technology solutions. Fiserv provides SPFI with a wide range of services, including:

• Core banking platform
• Digital banking solutions
• Payment processing services
• Data analytics and reporting

Fiserv's Website: https://www.fiserv.com/

Other Upstream Service Providers

In addition to Fiserv, SPFI utilizes the services of several other upstream service providers, including:

• CoreLogic: Provides property data and analytics
• Experian: Provides credit reporting and risk assessment services
• Fiserv Capital Markets: Provides investment banking and capital markets services
• Federal Home Loan Bank of Dallas: Provides funding and other services to member financial institutions

Importance of Upstream Service Providers

Upstream service providers play a critical role in the operations of South Plains Financial. They provide the technology, data, and services that enable SPFI to offer its products and services to its customers.

By partnering with reputable and reliable upstream service providers, SPFI can focus on its core business functions and provide a high level of service to its customers.

South Plains Financial, Inc. is a bank holding company with its primary subsidiary, South Plains Financial, Inc. (Bank) located in Lubbock, TX, with additional locations in Texas, New Mexico, Oklahoma, and Kansas.

South Plains Financial, Inc.'s main customer base consists of individuals and businesses located in the communities it serves. The Bank offers a range of financial products and services, including:

Individuals:

• Checking and savings accounts
• Loans (personal, auto, home equity, etc.)
• Credit cards
• Investment products
• Online and mobile banking

Businesses:

• Commercial checking and savings accounts
• Business loans
• Lines of credit
• Treasury management services
• Cash management services
• Merchant services

South Plains Financial, Inc. also provides a variety of other services, such as:

• Trust and estate planning
• Retirement planning
• Insurance products

The Bank's website is www.southplainsfinancial.com.

Key Revenue Streams of South Plains Financial

South Plains Financial, Inc. is a bank holding company headquartered in Lubbock, Texas. It provides a range of financial services, including commercial and retail banking, mortgage lending, and wealth management. The company's primary revenue streams are:

1. Net Interest Income

• Estimated Annual Revenue: $600 million
• Net interest income is the difference between the interest earned on loans and investments and the interest paid on deposits and other borrowings. It is the primary revenue stream for most banks, including South Plains Financial.

2. Non-Interest Income

• Estimated Annual Revenue: $200 million
• Non-interest income includes fees and commissions from services such as mortgage banking, wealth management, and loan origination. It also includes gains from the sale of investments and other non-core activities.

3. Mortgage Banking Income

• Estimated Annual Revenue: $100 million
• South Plains Financial originates and sells mortgages through its mortgage banking operations. Mortgage banking income includes origination fees, servicing fees, and gains on the sale of mortgages.

4. Wealth Management Income

• Estimated Annual Revenue: $50 million
• South Plains Financial offers wealth management services through its trust and investment management departments. Wealth management income includes fees for investment management, financial planning, and trust services.

5. Other Revenue

• Estimated Annual Revenue: $25 million
• Other revenue includes income from insurance premiums, credit card fees, and other miscellaneous sources.

Total Estimated Annual Revenue: $975 million

Please note that these are estimates and actual revenue may vary.

Key Partners of South Plains Financial, Inc.

South Plains Financial, Inc. has established strategic partnerships with various financial institutions, technology providers, and other entities to enhance its operations and offer a comprehensive suite of financial services to its customers. Here is a list of the company's key partners:

1. FHLBank Dallas

Website: https://www.fhlbdallas.com/

FHLBank Dallas is a regional cooperative bank that provides financial products and services to member financial institutions in Texas, New Mexico, Arkansas, and Louisiana. South Plains Financial is a member of FHLBank Dallas and utilizes its funding and liquidity management services.

2. Fannie Mae

Website: https://www.fanniemae.com/

Fannie Mae is a government-sponsored enterprise (GSE) that provides financing for the mortgage industry. South Plains Financial has a partnership with Fannie Mae to purchase and securitize residential mortgages, which allows the company to offer competitive mortgage rates to its customers.

3. Freddie Mac

Website: https://www.freddiemac.com/

Freddie Mac is another GSE that supports the mortgage industry. South Plains Financial maintains a similar partnership with Freddie Mac as with Fannie Mae, enabling it to access funding for residential mortgages.

4. CoreLogic

Website: https://www.corelogic.com/

CoreLogic is a leading provider of data and analytics for the property and insurance industries. South Plains Financial utilizes CoreLogic's services to assess property values, mitigate risk, and improve its underwriting processes.

5. LenderLive

Website: https://www.lenderlive.com/

LenderLive is a technology-driven mortgage services provider. South Plains Financial has partnered with LenderLive to streamline its mortgage origination and servicing operations, providing a more efficient and convenient experience for its customers.

6. Fiserv

Website: https://www.fiserv.com/

Fiserv is a global provider of financial technology solutions. South Plains Financial utilizes Fiserv's core banking system and other technology services to manage its accounts, process transactions, and provide digital banking services to its customers.

7. Texas Department of Housing and Community Affairs (TDHCA)

Website: https://www.tdhca.state.tx.us/

TDHCA is a state agency that provides financing and assistance for affordable housing in Texas. South Plains Financial partners with TDHCA to offer affordable mortgage products to first-time homebuyers and low-income families.

8. Farmers & Merchants Bank of Texas

Website: https://fmbtx.com/

Farmers & Merchants Bank of Texas is a community bank based in Plainview, Texas. South Plains Financial has a referral partnership with Farmers & Merchants Bank, which provides customers of both institutions access to a wider range of financial services.

These partnerships play a crucial role in South Plains Financial's ability to provide a diverse range of financial solutions to its customers, optimize its operations, and maintain a competitive position in the financial services industry.

Key Cost Structure of South Plains Financial

South Plains Financial, Inc. is a bank holding company headquartered in Lubbock, Texas. The company operates approximately 54 banking offices in various locations throughout Texas and New Mexico.

Estimated Annual Cost: $1.03 billion

Major Cost Categories:

1. Interest Expense ($346.2 million)

• Interest paid on deposits and other borrowings.

2. Salaries and Benefits ($217.0 million)

• Salaries and compensation for employees.
• Employee benefits, including health insurance, retirement plans, and paid time off.

3. Occupancy and Equipment ($106.6 million)

• Rent or mortgage payments for office space and branches.
• Maintenance and repairs of buildings and equipment.
• Depreciation of equipment.

4. Marketing and Advertising ($52.1 million)

• Costs associated with promoting and advertising South Plains Financial's products and services.

5. Data Processing ($41.5 million)

• Costs related to maintaining and operating the company's information technology systems.

6. Professional Services ($28.7 million)

• Fees paid to external consultants, auditors, and attorneys.

7. Other Operating Expenses ($19.0 million)

• Various other expenses, such as postage, supplies, and insurance.

8. Impairment Charges ($16.8 million)

• Write-downs of assets due to market conditions or other factors.

9. Provision for Loan Losses ($13.8 million)

• Provision to cover potential losses on loans.

10. Other Non-Operating Expenses ($11.7 million)

• Non-operating costs, such as interest on debt and foreign exchange losses.

Factors Affecting Cost Structure:

• Number of branches and locations
• Size and complexity of operations
• Interest rate environment
• Regulatory requirements
• Competitive landscape
• Economic conditions

Sales Channels

South Plains Financial operates through a diversified network of sales channels to reach its target customer base. These channels include:

• Independent agents: A significant portion of South Plains Financial's sales are generated through independent agents who represent the company's products and services to customers. These agents are licensed professionals who provide personalized advice and guidance to clients and work to secure new business on behalf of the company.
• Company-owned branches: South Plains Financial also operates a network of company-owned branches located throughout its service area. These branches provide a direct point of contact for customers to interact with the company's representatives, receive product information, and complete financial transactions.
• Online platform: South Plains Financial offers an online platform that allows customers to access and manage their accounts, conduct transactions, and obtain information about the company's products and services. The platform streamlines the customer experience and provides convenience and accessibility.
• Strategic partnerships: South Plains Financial has established strategic partnerships with other businesses and organizations to expand its reach and access new markets. These partnerships include agreements with financial advisors, wealth management firms, and technology providers.

Estimated Annual Sales

South Plains Financial does not publicly disclose its estimated annual sales figures. However, the company's financial performance and industry benchmarks can provide insights into its approximate revenue range. Based on industry data and analysis of the company's operations, it is estimated that South Plains Financial's annual sales could be in the millions of dollars.

It is important to note that this is an estimate, and the actual sales figures may vary depending on market conditions, competitive factors, and the company's overall financial performance.

Customer Segments of South Plains Financial

South Plains Financial serves a diverse range of customer segments, including:

Individuals

• Mass Affluent: Individuals with investable assets of $250,000 to $1 million. (Estimated annual sales: $500 million)
• High Net Worth: Individuals with investable assets exceeding $1 million. (Estimated annual sales: $1 billion)
• Ultra High Net Worth: Individuals with investable assets exceeding $10 million. (Estimated annual sales: $500 million)

Businesses

• Small Businesses: Businesses with annual revenue under $10 million. (Estimated annual sales: $250 million)
• Mid-Sized Businesses: Businesses with annual revenue between $10 million and $100 million. (Estimated annual sales: $500 million)
• Corporations: Large businesses with annual revenue exceeding $100 million. (Estimated annual sales: $1 billion)

Non-Profit Organizations

• Non-Profit Organizations: Charities, foundations, and other non-profit organizations. (Estimated annual sales: $100 million)

Other

• Trusts and Estates: Accounts managed for trusts and estates. (Estimated annual sales: $250 million)

Estimated Annual Sales

The estimated annual sales for each customer segment are based on industry benchmarks and the company's historical performance. It is important to note that these are estimates and actual sales may vary.

Additional Details

• South Plains Financial focuses on providing wealth management services to its customers.
• The company has a strong presence in the Southwest United States.
• South Plains Financial is a subsidiary of Cullen/Frost Bankers, Inc.

Value Proposition of South Plains Financial

South Plains Financial, Inc. (SPFI) is a financial holding company that provides various financial services through its subsidiary, South Plains Financial Services, Inc. (SPFSI). The company's primary focus is on community banking and financial services within the Lubbock, Texas, metropolitan statistical area (MSA).

Target Market

SPFSI's target market includes individuals, small businesses, and commercial customers located within the Lubbock MSA. The company aims to provide personalized financial solutions that meet the specific needs of its customers.

Core Value Proposition

SPFI's core value proposition is centered around providing exceptional financial services backed by a strong commitment to customer satisfaction and community involvement. The company's key value drivers include:

1. Local Expertise and Personalized Service:

• In-depth understanding of the local market and economy
• Dedicated and experienced bankers who provide personalized financial advice
• Strong relationships built on trust and open communication

2. Comprehensive Financial Solutions:

• Wide range of banking products and services, including checking and savings accounts, loans, mortgages, and investment services
• Tailored financial solutions designed to meet specific customer needs
• Convenient access to financial services through multiple channels

3. Competitive Rates and Flexible Terms:

• Competitive interest rates and loan terms
• Flexibility in meeting customer financial goals
• Transparent pricing and fee structures

4. Commitment to Community:

• Active involvement in local businesses, organizations, and charities
• Support of community initiatives and economic development
• Investment in the well-being of the local community

Benefits to Customers

• Personalized financial guidance and tailored solutions
• Access to a comprehensive suite of financial products and services
• Competitive rates and flexible terms
• Strong local presence and community involvement
• Trusted financial partner committed to customer satisfaction

Competitive Advantage

SPFI's value proposition is differentiated by its focus on local expertise, personalized service, and community involvement. This sets the company apart from larger regional and national banks, allowing it to build strong relationships with customers and establish a competitive advantage within the Lubbock MSA.

Conclusion

South Plains Financial's value proposition offers a unique combination of local expertise, personalized service, competitive rates, and commitment to community. By leveraging these key value drivers, the company aims to build lasting relationships with its customers and become the preferred financial partner for individuals, small businesses, and commercial customers within the Lubbock MSA.

South Plains Financial, Inc. Risk Profile

Company Overview

South Plains Financial, Inc. (SPF) is a bank holding company headquartered in Lubbock, Texas. The company operates through its wholly-owned subsidiary, South Plains Financial Bank (SPFB), which provides a range of banking and financial services to individuals and businesses in Texas and New Mexico.

Credit Risk

• Loan Concentration: SPF has a significant concentration in commercial real estate (CRE) loans, which accounted for approximately 55% of its total loan portfolio as of December 31, 2022. This concentration exposes the company to potential losses in the event of a downturn in the CRE market.
• Non-Performing Loans: SPF's non-performing loan ratio has been trending up in recent years, reaching 2.42% as of December 31, 2022. This indicates that the company is facing some challenges in managing its loan portfolio.
• Reserve Coverage: SPF's loan loss allowance coverage ratio improved to 1.97% as of December 31, 2022. However, this ratio is still relatively low and may not be sufficient to cover potential loan losses.

Interest Rate Risk

• Asset-Liability Mismatch: SPF has a significant asset-liability mismatch, with a higher proportion of its assets being interest-rate sensitive than its liabilities. This exposes the company to interest rate risk, as changes in interest rates can impact its net interest margin.

Operational Risk

• Regulatory Compliance: SPF is subject to a range of regulatory requirements, including those related to capital adequacy, lending practices, and anti-money laundering. Failure to comply with these regulations could result in penalties or other regulatory actions.
• Cybersecurity: SPF faces cybersecurity risks, including the potential for data breaches or cyberattacks. These risks could damage the company's reputation and result in financial losses.
• Technology Risk: SPF relies heavily on technology to provide its services. Technology outages or failures could disrupt the company's operations and result in financial losses.

Liquidity Risk

• Deposit Concentration: SPF relies heavily on deposits for funding. A significant decline in deposits could strain the company's liquidity position.
• Loan Maturities: SPF has a significant portion of its loan portfolio maturing in the next 12 months. This could put pressure on the company's cash flow if these loans are not refinanced or repaid.

Reputational Risk

• Negative Media Coverage: SPF has been subject to negative media coverage in recent years, which could damage its reputation and erode customer confidence.
• Regulatory Scrutiny: SPF is subject to regulatory scrutiny, which could result in negative publicity or other reputational damage.

Other Risks

• Economic Conditions: SPF's performance is heavily influenced by the economic conditions in its operating markets. A downturn in the economy could negatively impact the company's loan portfolio and profitability.
• Competition: SPF faces competition from other financial institutions, including large national banks and community banks. Competition could limit the company's growth and profitability prospects.
• Acquisition Risk: SPF has a history of acquiring other financial institutions. Acquisitions can be risky and may not always be successful.