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South Plains: Coronavirus And Permian Oil Bust Could Cripple This Texas Bank


  • South Plains Financial is a Lubbock, Texas-based bank that completed its IPO in 2019.
  • South Plains has many potentially problematic assets on the balance sheet including energy loans, commercial real estate lending, and auto loans.
  • As a new IPO with minimal trading volume, I believe investors haven't discovered SPFI stock yet.
  • I expect shares to trade at a substantial discount to book value, which will result in a single digit share price.
  • This idea was discussed in more depth with members of my private investing community, Ian's Insider Corner. Get started today »

I've been digging through community and regional banks recently. The sector has gotten walloped, with the median bank falling around 35% since February. In general, that makes sense. A sudden economic shock is going to cause significant lending losses for most banks, regardless of their geography or particular lines of business.

That said, this crisis is going to hit some banks much harder than others. Over the past quarter, however, many people have simply dumped their regional banking stocks indiscriminately, making little distinction between the stronger and weaker names. This offers up strong buying opportunities for the good banks, which I have focused on - see my case for Northrim Bank (NRIM).

It also creates great set-ups on the short side as well. There are some banks that will be hit far harder than others as a result of this economic mess. In South Plains Financial (NASDAQ:SPFI), we have a fantastic example.


South Plains is based in western Texas, lends to energy companies, has worrying exposure to vehicle loans, and is significantly involved in construction lending as well. These would be risky things to be involved in even during a garden-variety economic slowdown. And this storm could be a massive blow. At best, South Plains is likely to take a major earnings hit. And many potential downside economic scenarios could see the bank face existential crisis; most of Texas' largest banks failed outright in the 1980s energy bust.

I've been looking at this bank for a couple months now. After selling off in March, the stock has settled into a trading range around $12.50 recently, with a slight uptick this week:

At this point, South Plains is trading for just a few bucks less than it did last fall, long before there was any sign of the coronavirus, or

This is an Ian's Insider Corner report published in April for our service's subscribers, and which has been updated to reflect recent events. If you enjoyed this, consider our service to enjoy access to similar initiation reports for all the new stocks that we buy. Membership also includes an active chat room, weekly updates, and my responses to your questions.

This article was written by

Ian Bezek profile picture

Ian Bezek is a former hedge fund analyst at Kerrisdale Capital. He has spent the decade living in Latin America, doing the boots-on-the ground research for investors interested in markets such as Mexico, Colombia, and Chile. He also specializes in high-quality compounders and growth stocks at reasonable prices in the US and other developed markets.

Ian leads the investing group Ian's Insider Corner. Features of the group include: the Weekend Digest which covers everything from new ideas to updates on current holdings and macro analysis, trade alerts, an active chat room, and direct access to Ian. Learn More.

Analyst’s Disclosure: I am/we are short SPFI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own shares of NRIM and CFR.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

The Millennial Investor profile picture
Great read like always. Shorting is not my thing, but I still appreciate the pitch.
David Stallard profile picture
Good work, but the 8 largest banks in Texas failed in the late 1980s primarily due to commercial real estate loans. Yes, some took a hit on energy loans; however, the mortal damage was due to heavy concentration in speculative commercial real estate development loans, typically including inflated land costs & all interest carry, i.e., no risk to developer/borrower (& even land profits) when projects failed. I worked in FDIC LBI (Large Bank Investigations) in Dallas during that time period and did the financial autopsies on several of them, i.e., examining the largest losses causing insolvency ... almost all were CRE, not energy, loans.
Ian Bezek profile picture
Hey David, thanks for reading. As I noted in the article, only 3% of the loan book is energy directly. The bank is primarily in commercial lending. As you can understand, commercial real estate in oil-rich towns and cities is now a particularly risky asset given the one-two punch of the plunge in Permian activity and the coronavirus.
David Stallard profile picture
Yep, I agree.
tech attorney profile picture
Fascinating writeup, thanks Ian.
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