Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. 3rd Quarter 2025 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. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead.

Thank you, Operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. With me here today are Curtis Griffith, our Chairman and CEO, Corey Newsom, our President, and Brent Bates. The earnings press release and earnings presentation are available on the News and Events section of our website, SPFI.bank. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied made during today's call are qualified by those safe harbor statements. Any forward-looking statements made during this call 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. Additionally, during today's call, we may discuss certain non-GAAP financial measures which we believe are useful in evaluating our performance. Reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release and in the earnings presentation. Curtis, let me hand it over to you.

Thank you, Steve, and good afternoon. As outlined on slide four of our presentation, we delivered strong third-quarter results highlighted by solid earnings growth as we continued to experience net interest income expansion supported by our low-cost community-based deposit franchise. The credit quality of our loan portfolio also continued to improve, and our return on assets markedly expanded. Our results demonstrate the strong foundation that we have purposefully built. We've added exceptional talent across the bank, while also making the necessary investments in our technology platform that position South Plains to efficiently scale our operations as we grow. We have also built strong liquidity and capital while continuing to improve the asset quality of our loan portfolio. As a result, I believe the bank is firmly positioned to accelerate our asset growth through both organic growth and accretive M&A opportunities. As Corey will expand upon, we continue to benefit from our competitors' acquisitions by attracting experienced lenders to the bank. We expect they will bring high-quality, long-term customer relationships they have built in their successful careers to South Plains. While we have been experiencing higher-than-normal loan paydowns, which has proved a headwind to loan growth, we expect an acceleration in growth next year through increasing our lending team by up to 20%. The investments that we've made in the bank, combined with the experience that we gained through the acquisition of West Texas State Bank, also positions us to explore further acquisitions. Of note, we continue to engage in discussions with potential target banks in our core markets that we believe have the potential to fit our conservative nature and overall culture and meet our strict criteria for a deal. As I have said on many of these calls, we are only interested in acquiring a bank that possesses these qualities and makes sense for us and our shareholders. importantly M&A is not the only option that we have to grow our organic growth initiative is just in the early innings and we are optimistic that we will see a sharp acceleration in loan growth in the year ahead as a result we will only do a deal that makes sense for the bank and our shareholders of which my family and I are the largest we believe that we are in a strong position to capitalize on opportunities to drive growth as the bank and the company each significantly exceed the minimum regulatory capital levels necessary to be deemed well capitalized. At September 30th, 2025, our consolidated common equity tier one risk-based capital ratio was 14.41%, and our Tier 1 leverage ratio was 12.37%. Given our capital position, we remain focused on both growing the bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. Last week, our Board of Directors authorized a $0.16 per share quarterly dividend, which will be our 26th consecutive dividend. Now, let me turn the call over to Corey.

Thank you, Curtis, and hello, everyone. Starting on slide five, our loans held for investment decreased by $45.5 million to $3.05 billion in the third quarter as compared to the linked quarter. The decline was primarily due to a decrease of $46.5 million in multifamily property loans, mainly due to the payoff of two loans totaling $39.6 million. As Curtis mentioned and we have discussed on previous calls, we've been experiencing a heightened level of loan payoffs and paydowns through the year, which have been a headwind to loan growth. Looking forward, we expect level of paydowns and payoffs to moderate as we look to 2026. Our yield on loans was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to the resolution of credit workouts. As a reminder, our loan yield was also boosted by 23 basis points in the second quarter due to $1.7 million interest recovery from the full repayment of a loan that had been on non-accruals. Excluding these one-time gains, our yield on loans was 6.84% in the third quarter and 6.7 second quarter, representing an increase of eight basis points. Looking ahead, the impact to our loan yields from the FOMC's 25 basis point reduction in their benchmark interest rate in September was not material, though we do expect our loan yields to moderate and continue to reprice our deposits and manage our margin as market rates decline. Importantly, our new loan production pipeline continues to remain solid and economic activity continues to be healthy. As we discussed on our second quarter call, we have a strong position in each of the communities and metro markets where we do business and have capacity with our existing infrastructure to expand our lending platform. We're actively recruiting lenders who fit our culture to grow our lending capabilities as we for our management team. So the quality of bankers that we are speaking with who have an interest in joining South Coast and dislocation creating more opportunity to expand our platform. As Curtis touched on, our goal is to grow our lending platform by up to 20 percent And we are more than halfway there, having added lenders in Houston and Midland since our last call. While loans in our metro metropolitan are at $1.01 billion, as can be seen on slide 7, growth will re-accelerate as we continue to add lenders across. Our metro metro loan portfolio represented 33.2% of our total loan portfolio. Given to slide 10, our indirect auto loan portfolio totaled $239 million at the end of the third quarter, which is relatively unchanged as compared to $241 million at the end of the linked quarter. we've been carefully managing this portfolio with a focus on maintaining its credit quality over the last two years which has resulted in a decline in loan balances of 57 million dollars since the third quarter of 2023 when the portfolio was 296 million dollars over this time period we have seen competitors become more aggressive at the higher end of the credit spectrum while volumes have declined more recently we have tightened our loan to value requirements to further ensure that we are proactively managing this portfolio in the current environment as well as any potential challenges to come. It is also important to highlight that we are primarily a lender through auto dealers to borrowers who are in our markets. 86% with super prime or prime credit ratings at original profiles can further be seen as our 30-plus days past $75,000 improved 8 basis points to 24 basis points in the 32 basis points in the second quarter. At year-end 2024, our 30-plus days past due loans stood at 47 basis points. 30-plus past due loans are the best early indicator to any potential signs of credit stress in this portfolio and believe our tightened credit standards will further protect the bank and the credit profile of our indirect auto portfolio as we look forward. Additionally, our net charge-offs for all $160,000 for the quarter is compared to $350,000 in the linked quarter. All of our indirect portfolio combined with the success that we are adding lenders to the bank, we expect loan growth to gradually accelerate to a mid to high single digit rate through 2026. We expect our new hires to begin contributing to a loan growth in 26 while the level of payoffs begin to diminish. We also remain cautiously optimistic that economic growth across our Texas markets can remain resilient and provide a tailwind to growth. Turning to slide 11, we generated $11.2 million of non-interest income in the third quarter as compared to $12.2 million in the length quarter. This was primarily due to a decrease of $1 million in mortgage banking revenues as can be seen on slide 12. The decrease was mainly from a $769,000 quarter over quarter decline and the fair value adjustment of the mortgage services have been relatively flat over the last four quarters given persistently high mortgage rates combined with low housing supply. We are pleased with how the businesses were forming in this low transaction environment and the recent easing of market interest rates, and believe we are well positioned for the eventual upturn in volumes as rates look set to decline further. Non-interest income was 21% of bank revenues, essentially flat with the linked quarter, and the year-ago 2024 third quarter. Continuing to grow our non-interest income remains a focus of our team. I would now like to turn the call over to Steve.

Quarter diluted earnings per share were 96 cents compared to 86 cents from the linked quarter. This increase is primarily a result of the reduction in provision for credit losses and increase in net interest income by the decrease in MSR fair value adjustment Corey mentioned. Slide 14, net interest income was $43 million for the third quarter compared to $42.5 million in the linked quarter. Our net interest margin calculated on a tax equivalent basis was 4.05% in the third quarter as compared to 4.07% in the linked quarter. As Corey touched on, we had loan interest and fee items related to specific credit workouts that positively impacted our NIM in both the third quarter and the second quarter. The third quarter impact was six basis points for $640,000, while the second quarter impact was 17 basis points or $1.7 million. Excluding these one-time items in both periods, our third quarter NIM increased by nine basis points to 3.99% from the linked quarter. On slide 15, deposits increased by $142.2 million at the end of the third quarter due to organic growth in both retail and commercial deposits. The increase was predominantly noted in the Lubbock market and follows the overall $53.6 million decline during the second increase, $50.7 million in the third quarter. Additionally, our non-interest bearing deposit to total deposit ratio percent in the third quarter from 26.7% in the linked quarter with a continued drop in CD rates contributed to the four basis point decline in our cost of deposits to 210 basis points in third quarter, down from 214 basis points in the linked quarter. 17, our classified loans decreased $21.1 million during the quarter. This includes the full collection of a $32 million multifamily property loan that had been talked about on prior calls. This is the second consecutive quarter with a positive resolution to a large previously classified and or non-performing loan that included full repayment of all amounts owed and shows our commitment to asset quality. Credit losses to total loans held for investment was 1.45% at September 30, 2025, unchanged from the end of the prior quarter. We recorded a $500,000 provision for credit losses in the third quarter, compared to $2.5 million in the linked quarter. The decrease in provision expense was largely attributable to a decrease in specific reserves, decreased loan balances, and overall improved growth. Note that we believe we continue to be well positioned for varying economic conditions. Head to slide 19, as compared to $33.5 million in the linked quarter. $519,000 decrease from the linked quarter was largely the result of a decrease of $581,000 in professional service expenses, primarily to consulting on technology projects and initiatives. In 30-2025, we redeemed $50 million in subordinated debt. The redemption was done in conjunction with the end of the initial five-year fixed rate period as the debt was to begin floating quarterly at a higher interest rate. We made the decision to repay the debt given the higher rates, combined with our view that we can readily access the fixed income market if and when a need arises. Slide 21, we remain well-capitalized with tangible common equity to tangible assets of 10.25% at the end of the third quarter, an increase of 27 basis points from the end of the second quarter. Tangible book value per share increased to $28.14 as of September 30, 2025, compared to $26.70 as of June 30, 2025. The increase was primarily driven by $13.7 million of net income after dividends paid and by an increase in accumulated other comprehensive income of $9.1 million. I'll turn the call back to our operator to open the line for any questions. Operator?

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One moment, please, while we poll for questions. Thank you. Our first question is from Joey Anchunas with Raymond James.

Good afternoon. So you discussed your plan to increase your lending team by up to 20% next year. And, you know, that follows a relatively rapid pace of hires over the past couple years. I guess how much of that growth is coming from true lenders versus support staff? And for context, can you tell us how many lenders we should use as a base to go off this growth?

I think from the base, it's probably about 40. And as far as – none of that includes support. That's all production.

And based on the 20% that we're talking about, we've probably already achieved north of 10% so far this year.

We're already partway to that.

And are there any particular markets that you can highlight where that growth has either come from or where you're expecting that growth to come from?

Yes. Hermione?

Okay. So shifting gears here, and I apologize. I only heard most of your comments on your indirect auto portfolio. And I certainly understand your great pass-through ratios and low charge-off activity. However, I noticed in your deck your concentration of subprime and deep prime indirect loans increased pretty materially. Can you talk about that?

I'll repeat part of that. I didn't hear part of it.

Yeah, it looks like there's an increase in subprime and deep subprime kind of concentration in that portfolio.

I mean, I don't see that. We haven't had much of an increase.

Yeah, so, hey, Joe, this is Steve. I'll start with that. And I'll have to say this is showing, while it says on the deck, it's showing the category at origination. The numbers that actually got put in are updated information, so it's not as of origination date, which it normally is. I think we did not grab the consistent data we've been providing. I mean, this is really more updated and shows some changes in what's going on with borrower credit scores. And that is – so that's why it does look different than what you've seen before.

Got it. That's helpful. And then lastly for me, just kind of a modeling question, you know, based on that $50 million of subdebt you guys redeemed, what was the incremental cost associated with that?

Well, I mean, it would have been going up to...

No, I was wondering about any expenses that you incurred, you know, in the P&L from redeeming that. Yeah, just to kind of try to understand the true run rate.

Yeah, and I may not be understanding.

I mean, there was no expense. It was at the end of the call period.

Yeah, if that's what you're wondering. We didn't go outside of a call period. We had the opportunity. The window opened, and we took it.

Okay, understood. So, well, great. Well, thank you for taking my questions.

Our next question is from Woody Lay with KBW.

Hey, thanks for taking my questions. I wanted to follow up on the hiring initiative. You did a similar initiative back in 2021, and I believe it was pretty successful. So could you talk about your kind of previous experience, you know, being aggressive on the hiring front and how you're translating those past experiences to what you're doing now in the market?

Yeah, so if you go back to that time frame, we were fairly aggressive in hiring those. But if you also remember, we had a fair number of retirees that were coming around in the near term after that. And so we were as equally focused on making sure we were prepared to replace those as we were trying to increase our team at the same time. That's not the case today. We're just going to continue to take advantage of some really good opportunities and for us to be able to expand in those markets. And the way we look at those, whenever we model one, we model to a break-even in six months or less. And that's what we stay pretty well focused on to make sure that's how we do it. But, you know, if you still go back to the risk, trying to make sure that we find a credit culture fit and a culture fit that fits into who we, it's quite an undertaking, but one that we're quite proud of and have had great success.

Yeah, and then I believe you all said you are about 50% the way through there, but it doesn't feel like, you know, we've seen a huge expense impact from that. Is it fair to, I guess, just how should we think about the expense growth rate? from here given the additional hires you expect.

You're usually on cleanup on me for stuff like that, but I mean, these guys are covering their work. It hasn't been that bad, but Steve, what would you do?

I'll hit it one. One time has been spread out. Non-interest expense, modestly.

We've kind of taken the approach that this is the kind of money we're...

And remember that a significant part of the compensation will be in their ICP packages, and that won't get paid out until well into next year, even for the ones that are bringing bringing the business on.

Yeah, and maybe just last for me on M&A, you all sound a little bit more optimistic on the M&A front than maybe previous quarters. I know you all are very stringent on who you look at and who would make a good target for you all. So could you just remind us sort of, you know, go down the checklist of what makes a good target for South Point?

I'm going to lead it off. It's number one got to be a culture fit. and we've got to make sure that this is somebody that we think that we could go achieve success with long term. And the numbers have got to align. And I'll let Curtis talk a little bit further about this, but we're as focused on culture as anything that you can find because that's where we've seen more of the train wrecks that really come from.

And if we can't integrate the acquired bank successfully, then this is not good for anybody, not good for their customers, not good for our shareholders. So as Corey says, that's really what we focus on. But we also want to focus on successful banks, ones that are doing a good job with what they're doing, that have built some customer loyalty, that they have, again, and this is all part of the culture, that have that mindset among their employees that they're not there as short timers for things. They're there for the long haul, and we want to just transition them over to be working for us. And that's the kind of group that we look for. And, you know, it's got the numbers have to work. And right now, I think we're seeing out there in the marketplace lots of activity. And it's interesting that it's coming at a time when bank stocks really aren't doing all that well. We're certainly not leading the market by any means. So a lot of the acquirers, including us, don't have a big multiple to play with. So you've also really got to look at someone that is looking at joining us up, joining with us as an investor to be there for the long pull, and they ultimately benefit, their shareholders ultimately benefit through the long-term growth in our stock. So it's a combination, and I think we are going to see some activity. I really do. We're looking at some very promising situations right now.

Woody, both of your questions are kind of funny because they're kind of tied together. Typically, unless there's disruption involved, we're not hiring lenders or employees that are looking for a job. We look for contentment. I think the same thing goes as we look for an acquisition. There's a difference between somebody who may want to sell and somebody who has to sell, and we're much more focused on somebody who might want to sell.

Yeah, that makes total sense. Well, as always, thanks for taking the questions.

Absolutely.

Our next question is from Stephen Skouten with Piper Sandler.

Hey, good afternoon, everyone. We'll see if you've gotten tired of answering questions about these new hires yet. When you bring these guys on, I know, Corey, you said a thing about like a six-month break even. Are you guys targeting any specific kind of segment of lender, like CNI versus CRE currently? And then ultimately, how big of a book of business do you anticipate each one of these people bringing over? Or is it kind of – is it a $50 kind of million book over time? Or what's the right way to frame up the potential of each kind of hire if you see it at a high level?

So, Woody, I mean, speaking up to me, Stephen, we're a good portion of these. I mean, there's still going to be CRE or real estate. I mean, portfolios is a general rule. I mean, we like to see an eye when we can get it. But, I mean, we've never hid from the fact that we're a real estate bank, and a lot of that stuff ties together. But if you – I will just tell you this. Because we've never gone out and hired somebody to see what portion of their book they could bring. We want to know what their abilities have been and how they generate business. And typically, we will hire them under the impression they may not bring anything. But the people that we're hiring are carrying portfolios that might run anywhere from $75 to $400 million. And, I mean, they ask you to go out and produce and have been very successful for long periods of time before they've ever joined our organization. So I would just tell you that I'm probably pretty conservative when I give you those numbers right there. Okay, that's helpful.

And just the ones, I mean, if I'm doing the math kind of roughly right, it sounds like maybe you've got four or five more lenders to add to get to this 20%. And the four or five maybe that you've already added that comprises the 10% already, what have they done so far or what kind of build have you seen in those people over, I don't know what length of time that's been when you've added them, but over the duration of time that you've added them?

I think you have to factor in that you're probably on the longest of two quarters in place as opposed to some that have been a little bit shorter than that. So I really just, I guess, rattle off any numbers because I didn't kind of expect that one. Are we seeing nice, good-sized transactions coming across the table? Absolutely. Absolutely. I would venture to say I can't think of the end one that's not already breaking it.

So most of them have been there under, you know, it's all under six months. Sounds like maybe a lot under three months. So it's all been relatively recent.

And then maybe going back on.

Typically, a lot of these people that you'll bring on, they may have a non-solicit for a period of time on the front end. It's getting something that doesn't conflict with anything they might have already had in agreement to place. We're pretty careful about all of that stuff. See if their overall ability and what we see probably on the first six months are probably.

And then maybe this won't be for Steve. I'm kind of curious on where you think, like, a good starting point is for the NIM next quarter. Obviously, there's a lot of puts and takes there with the recovery. I guess maybe starting from that $399 and out of the recovery, but then I assume it looks like you're paying the sub-date off with existing liquidity, so I assume there'll be some NIM benefit there. And then, you know, rate cuts. So if there's, you know, maybe a starting point you think about for fourth quarter as a jumping-off point.

As you said, there are lots of puts and takes. I mean, that's a, you know, we did show core, if you will, a nine basis point increase. But, you know, the Fed movement just only occurred right at the end of the quarter. And, you know, that's increasing. Again, we've got some, like we've talked about before, some of our public funds that they are tied to an index. but they may lag until the following month or something like that where they will catch up. But we've done good. I think in the immediate term, you may see a slight decline in NIM until everything kind of works through the system. We're able to reprice deposits the way we need to, and you still have some loans coming off of low rates at a five-year mark. So, again, like I just said, lots of puts and takes, but that range is not a – That's helpful.

And maybe one last one for me, just kind of going back to the indirect auto, and I hear what you're saying, Corey. You know, losses obviously haven't really been material this quarter or in the past, but that data of credit scores and the migration, even though I know it's not apples to apples in the quarter-over-quarter presentation of it, but it does obviously show migration of credit scores downwards. I mean, does that concern you at all, or is that kind of part of why you guys have been pulling back a little bit in Interact Auto, or maybe any more color you can give about that credit score migration and what that maybe means for the consumer part of your book?

Yeah, this is Brent. We have done kind of a study typically once a year where we pull scores on the whole portfolio, soft scores on the whole portfolio. And what we're seeing is both this year and in last year, we saw some migration in the bottom half of those credit scores migrating downward. All through those 24 months, we really haven't seen delinquencies rise, cause some concern. But it is something we actively monitor, just like all other areas of credit risk, where we're diligently looking for a potential issue.

On these loans, it ends up being, what, a little over two years.

Yeah, it's pretty fast.

We've just stayed so focused on the upper portion, higher-end stuff on the portfolio that we want to be very, very careful with it.

Stephen, it is very true. All across the country, the folks kind of on the lower end, life's getting harder. It's getting tight out there, and you're seeing it in all kinds of areas. And I worry about that some just from the overall economy. The good news for us is, yes, we do have some of those, but we have very few of those. So we're not immune to some of our people having credit problems, but so far it just hasn't impacted us on any meaningful losses. And we don't think it will because so much of that portfolio is much higher credit scores.

Go back and keep in mind one thing. I mean, if you put the dollar amount to it, you're still looking at less than $20 million for a deep subprime. And non-audit, don't get out into some of that.

Yeah, yeah, no, that makes sense. And I guess at the end of the day, if the past dues are still good, maybe they're not paying their credit card, but they're continuing to pay their auto payment to make sure they got some way to get to work and the like.

And that's what we've seen. I mean, they'll pay for the car when sometimes they may miss on something else.

That's great, guys. Appreciate all the color and the time this afternoon.

You bet.

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Our next question is from Brett Rabbiton with the Hobbit Group.

Hey, guys. Good afternoon.

I wanted to go back to payoffs, and I know that's been a topic for some quarters now, and you guys are optimistic. Obviously, all this hiring is going to help drive origination activity. To what extent does the commercial real estate book look vulnerable to the curve here, to the permanent market, just given a dip here recently in rates? Does that concern you guys at all about continued payoffs, maybe in the CRE book, just given where rates are?

Yeah, this is Brent. I do think we still have some that are scheduled, stabilized, kind of a normal course a little bit. I think what you've seen a little bit of in the past six months or so has been just partly efforts of identifying potential credit issues and resolving a little pressure on loan balances. We will have some additional payments coming maybe a little earlier.

Again, we were looking at our multifamily. It's now about $100 million over the last three quarters. If you take that $100 million and you try to, you know, over half of that was the two credits that we told the whole world. we were exited. It did not matter. We exited without any loss or anything else, but we didn't feel like it was what we wanted on our balance sheet. But you take another 25% of that, and it went into a non-traditional bank lender that let them take a P&I loan back to interest only. We're not doing that stuff. And so there's a little bit of that stuff that our credit standards to keep something on our books. We'll go out there and find new business to continue to replace it with but we will not lower credit standards just because we're afraid of something's going to pay off but here's the the bigger one in all of that i think in nearly every aspect of even what we've talked about all those loans were at below market rates we were okay they left and so not all not all headwinds that come with some pay downs are necessarily a bad thing especially if you were in a situation that you had some stuff that was back in the four and five percent rates that you don't really i mean it's not something you really want to have on the books okay um that's all great color.

That's all I had. Thanks, guys. Good talking to you. Thank you.

There are no further questions at this time. I'd like to hand the floor back over to Curtis Griffith for any closing comments.

Thank you, Operator. Thank you to all of those that participated on today's call. Just to conclude, we do believe our third quarter results demonstrate a strong financial position, as well as growing earnings power and capital of the bank. While delivering our strong earnings growth, we've been making necessary investments to expand our capabilities, position South Plains to be a much larger company. Our growth will come from our strategic initiative focused on re-accelerating organic loan growth while seeking to expand South Plains through accretive M&A opportunities. We've continued to add experienced lenders all across our markets to expand our lending platform and increase our loan growth through 2026. We also continue to engage in discussions with potential acquisition candidates and are pleased with the opportunities we're evaluating. Fortunately, the Organic Lone Growth Initiative is also just in the early innings. We're optimistic we'll see that growth in the year ahead. As a result, we're only going to do a deal that makes real sense for the bank and our shareholders. Taken together, we believe we're in a good position to deliver on our initiatives and drive value for our shareholders as we work to accelerate the growth of South Plains Financial.

Thank you again for your time today.

This concludes today's conference.

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