South Plains Financial, Inc. Q4 FY2025 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Fourth 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, and, 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. The related earnings press release and earnings slide deck presentation issued earlier today are available on the news and events section of our website, sbfi.bank. Please refer to slide two of the presentation for our safe harbor statements regarding forward all comments expressed or implied made during today's call are made only as of today's date. Harbor statements in the presentation and earnings release. Refer to slide two of the presentation for our disclaimer regarding the use of non-GAAP financial measures can be found in our presentation and earnings release. I'm joined here today by Kurt Scrooge, Corey Newsom, our president.

I'm very pleased with the results that we delivered over the power employees for their hard work and commitment to Citibank and our customers. Their efforts are the key to our success, and they demonstrate every day the culture that we have developed over South Plains, our core purpose, to help people succeed and live better. I believe that we're here to help enhance lives by creating a great place to work, help people achieve their goals, and invest generously in our communities, because there is nothing more rewarding than helping people succeed and to attract the best employees, develop deep relationships with our customers, and ultimately deliver strong financial results for our shareholders. This can be seen by our achievements for the full year of 2025, as outlined on slide four of our presentation, where we delivered a 17.8% increase in diluted earnings per share, loan growth in line with our guidance, 33 basis points of NIM expansion, as our NIM was 4% for the fourth quarter, tangible book value per share growth of more than 14% to $29.05, and as previously announced, we entered into a definitive agreement to acquire BOH Holdings and its banking subsidiary, Bank of Houston. While I am very proud of our results, I'm even more excited with the opportunities that I see ahead as we continue to execute our strategy to end our lending team across as well as pursuing a creative agreement announcement in December to acquire Bank of Houston. On slide five, we believe Bank of Houston will complement our existing Houston team and bring both meaningful scale and deeply entrenched customer relationships to South Plains in one of the fastest-growing metropolitan markets in the country. More importantly, the Bank of Houston team, led by Jim Stein, holds similar values to those that we hold dear at South Plains. A genuine focus on employees and similar culture and values is a necessary factor to a successful merger, and I believe we've found that in Bank of Houston. I'm looking forward to partnering with Jim, who will continue to lead his team once the merger is consummated, while also joining the boards of both South Plains and Citibank. Jim will provide important continuity and leadership depth as we work to further scale our presence in the Houston market. Looking deeper into the Houston market, our existing team has worked hard to build a strong presence in Houston as our loan portfolio has grown at a 34% compound annual rate over the last five years. We are projected to have more than $1 billion in loans in the Houston region, which is significant to us. Importantly, both institutions share a focus on commercial real estate lending, a segment where Bank of Houston has built a high-quality portfolio and where Bank of Houston and Citibank's credit culture and underwriting discipline are closely aligned. The merger is a good strategic fit with low execution risk and a platform that enables us to both deepen and expand our customer relationships. Merger is also compelling, as we expect it to be approximately 11% accretive to our earnings in 2027, with an attractive tangible book value earnback of less than three years. We believe that BOH is a highly efficient, profitable company that has demonstrated that the transaction is structured to provide that we are very much alive. I look forward to officially welcoming the Bank of Houston team when the merger is completed, which we expect to occur early in the second quarter of 2026. In fact, BOH to be a tailwind to our growth, the progress we've made in recruiting talented lenders to South Plains as we continue to benefit from the dislocation that is occurring across our markets from the mergers that have taken place over the last two years, which Corey will touch on. Taken together, we expect our loan growth to accelerate to a mid-to-high single-digit growth rate in 2026, which should also drive a nice acceleration to the earning power of South Plains. ...capital position for the many opportunities that we have in front of us. Given our capital position, we remain focused on growing Citibank 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 $0.17 per share quarterly dividend, which will be our 27th consecutive dividend. Now let me turn the call over to Corey.

Starting on slide 6, our loans held for investment increased by $91 million to $3.14 billion in the fourth quarter as compared to the linked quarter. The increase was primarily due to organic loan growth in multifamily property loans, direct energy loans, and other commercial loans. I would note that our average loan balances were down slightly in the fourth quarter because the majority of our loan growth came on later in December, which should provide a lift to our net interest income in the first quarter. Our yield on loans was 6.79% in the fourth quarter as compared to 6.92% in the linked quarter. It's important to point out that our loan yield was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to resolution of credit workouts. Additionally, 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-accrual. Excluding these one-time gains, our yield on loans was 6.84% in the third quarter and 6.76% in the second quarter, representing a relatively steady loan yield over the last nine months. While we have not yet experienced a material impact to our loan yields from the series of FOMC 25 basis point reductions in their target interest rate in September through December, we do expect our loan yields to moderate in the quarters ahead. That said, we remain optimistic that we can continue to reprice our deposits and manage our margin as market rates decline. Accelerating our loan growth has been our number one strategic priority over the last year as we focus on expanding our lending platform. We've been selectively recruiting experienced markets while also benefiting from the dislocation created by our competitors' acquisitions. We ended the year having completed about 50% of our expected hiring occurring across our Dallas, Houston, and Midland markets. We expect our new lenders will bring the high-quality, long-term customer relationships that they have built in their successful careers to South Plains, which we expect will drive an acceleration to our loan growth to the mid- to high-single-digit range in 2026. In fact, we are already seeing an acceleration given the strong loan growth that we delivered in the fourth quarter, as well as a nice pickup in our major metropolitan markets of Dallas, Houston, and El Paso, where loans increased by $15 million or 5.8% annualized to $1.03 billion as outlined on slide eight. Given our thoughtful expansion in these markets, we expect loan activity to continue to improve and are also excited to close our pending merger with BOH, which will increase our scale in the high-growth Houston market. We do still expect some headwinds in the first quarter of 2026 from several expected payoffs in our multifamily property portfolio. Turning to Bank of Houston, they had approximately $772 million in assets, $633 million in loans, and $629 million in deposits as of September 30, 2025, which will provide us with a substantially expanded platform in the Houston market. Importantly, Houston's Harris County was the number one fastest-growing county in the U.S. in 2024, while also being the top relocation destination. The economy is dynamic, and we should see our commercial and private banking relationships expand across the Houston market. It's no BOH's management team, spent time getting to know Jim Stein, and I really appreciated his philosophy for running Bank of Houston and quickly came to realize that our cultures were very similar. I could see that our banks would work well together and that our teams were like-minded, which should minimize potential disruption and risk from the acquisition and its integration. I'm even more confident of that today. At South Plains, we've built a great business in Houston with a strong team, and BOH should nicely complement our growth strategy and provide important scale. Moving to slide 11, our indirect auto loan portfolio totaled $241 million at the end of the fourth quarter, which is relatively unchanged as compared to $239 million at the end of the linked quarter. As we discussed on our third quarter call, we have 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 $55 million since the third quarter of 2023, when the portfolio was $296 million. Over this time period, we have seen competitors become more aggressive at the higher end of the credit spectrum. More recently, we've tightened our loan-to-value requirements to further ensure that we are proactively managing this portfolio in the current economic environment, as well as any potential challenges to come. that this consumer portfolio comes primarily through auto dealers who are at further improve the transparency on this portfolio given some of the challenges in the sector. We have updated our indirect auto disclosure. What you can see is that 94% of our current indirect auto portfolio was originated in the super prime or prime categories with an additional 5% originated in the near prime categories. Normal credit deterioration to occur over time with the majority of the portfolio remaining super. The origination to the end of the fourth quarter of 2025, we've experienced only modest deterioration with the portfolio now 87.7%, 6% near prime. Strong credit profiles of our consumer borrowers can further be seen in the credit metrics of this portfolio as our 30 plus days past $464,000 to 19 basis points continue to believe that our past due status is the best early indicator to any potential signs of credit stress in this portfolio and believe our tight and credit standards will further protect Citibank and the credit profile of our indirect auto additionally. Our net charge-offs for all consumer autos were approximately $382,000 for the quarter as compared to $160,000 in the third quarter. We generated $10.9 million of non-interest income in the fourth quarter, which was relatively flat as compared to $11.2 million in the linked quarter. The modest decline from the third quarter was primarily due to a $185,000 decrease in mortgage banking revenues mainly due to the typical seasonal decline in mortgage volumes through the fourth quarter as can be seen on slide 13. Overall, we are pleased with how our mortgage business is performing in this low transaction and interest rate environment and believe we are well positioned for eventual upturn in volumes. Non-interest income was 20% of bank revenues essentially flat with the linked quarter. Continuing to grow our non-interest income remains the focus of our team. I would now like to turn the call over to Steve.

earnings per share were $0.90, compared to $0.96 from the linked quarter. This decrease was primarily a result of a larger provision for credit within the quarter, though the majority of those new loans funded later in December, coupled with the one-time interest income items in the linked quarter. At 15, net interest income was $43 million for the fourth quarter, in line with the third quarter's result. At 4.05, as I already mentioned, we have a look at 2025. for $1.7 million, excluding these one-time items in both periods to just one basis point. On slide 16, from the linked quarter, at $3.87 billion at the end of the fourth quarter, while we experienced strong growth over the full year, with deposits rising $253 million, or 7% from year-end 2024, and deposits modestly decreased by $26 million in the fourth quarter, which led to a slight decline in our non-interest-bearing deposits 0.4% as compared to the linked quarter. Importantly, we grew our non-interest-bearing deposits by $88 million for the drove a slight increase in our non-interest-bearing deposits to total deposits ratio as compared to year-end 2024. Deposits decreased by 9 basis points to 2.01% compared to the linked quarter as we've been repricing our deposit base lower following the FOMC's series of 25 basis in our cost of funds in the first quarter given the Fed's most recent cut. A ratio of allowance for credit losses to total loans held for investment was 1.44% at December 31, 2025, relatively stable from the end of the prior quarter. $8 million provision for credit losses in the fourth quarter compared to $500,000 in the linked quarter. As I previously mentioned, the increase in provision was largely attributable to the strong loan growth that we delivered in the fourth quarter. It was $33 million in the fourth quarter, unchanged from the linked quarter. During the quarter, we had an increase of $1.1 million in professional service-related expenses, in addition to consulting on technology by a decrease of $1 million. 10.61 tangible book value per share increased to $29.05 as of December 31,

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys our first question comes from woody lay with kbw you may proceed

with your question hey good afternoon guys hi woody wanted to um start on the nim outlook and you know i know if you adjust for some of those workout fees nim was relatively stable quarter over quarter as you you know think about the strong growth you expect in 2026 do you think the NIM can remain relatively stable or is that higher growth going to come on at lower spreads

and could drive the NIM down a little bit should be helpful to us we just know there's a lot of a lot of factors that go into it and you know I hate to say that that we can we can expand it from where we're at. I mean, there's stores, but there's in the last year or two that have come down with a little tough, and there's just a lot of competition still out there and trying to match what, or at least compete with what they're doing on the deposit side. Some of them are not coming down quite as fast on some of those funds. So all that being said, again, I don't know that expansion is uh where we'll be try to keep it where it is but i mean you could see a little

bit of compression well there's definitely gonna be some some exposure to some compression we just gotta we've got to see if we can be as good at managing the cost of deposits as we have been

we'd be a little bit naive not to think that we had some pressures there yeah and then how do you think about the deposit growth during the year because i i know that you know you're expecting strong growth and then also with the pending boh acquisition um you know they've got jumbo cds around 30 percent of deposits so it would feel like you could flex your legacy um markets a little bit on the deposit side so how are you thinking about deposit growth throughout the year

uh what is this curtis and yeah you're you're hitting on the point there i i do think and And realize, BOH has actually got pretty good NIM themselves right now, but we do believe that over time, we can reduce their deposit cost, or effectively the deposit cost of their deposit base, as we kind of bring them into our structure. That could kind of offset some of the other NIM pressures, but the big question is how fast can we do it?

Got it. And then just last for me, shifting to M&A, you put in the relief that you're open to additional deals that look similar to BOH. So would your preference be to add more scale in Houston? Are you looking all over the footprint and just – would you be comfortable announcing a deal, you know, with BOH pending? Or do you kind of need to see that deal close and get through integration first?

I think the first thing is – and we're trying to be very thoughtful about what we're doing. I mean, we did a lot of study of BOH before we really worked there. And that's the way we're approaching all of – you know, looking at all of these things. We're not just dialing up so that everybody gets a phone call from us just to see what's happening. We're trying to be very thoughtful and very methodical. Would we be afraid of something being announced in there? No, we wouldn't be afraid, but, I mean, we're pretty thoughtful, and I think it's taken us this long since we did the last one that we've proven that we're not somebody that's just going to – Houston is a great market. We have no problem in the Houston market. Are we tied completely to only looking there?

Well, I appreciate the insight. Thanks for taking my questions.

Thanks, Woody.

The next question comes from Brett Rabbitin with Havdi Group. You may proceed with your question.

Good afternoon.

I wanted to talk a little bit about payoffs, which, you know, has been a topic that has slowed loan growth the past few quarters. It didn't seem like it did at all in 4Q, and so I was just curious if there were really no payoffs in the fourth quarter and then just, you know, the expectations. It sounds like you might have some in the first quarter. How are you guys thinking about net versus growth for 26 with this mid-to-high single-digit growth expectations?

We do think there are a few more that timing is uncertain. So we factored that into what we're hoping for. It's hard to predict them all, but we've got a pretty good.

We went through a period where we had some exits that we wanted to make. we're kind of past that i mean we're going to have the normal i mean give and take you know with between payoffs and fundings that are going to come along there's nothing that just like the ones we talked about that'll be coming in the first quarter there's nothing about those that are unexpected and they're they're kind of just following their life cycle of where they should be we think that we've kind of got past the ones that where we felt like that we needed to okay

um and then i appreciate the additional you know guys i haven't been that really focused on your indirect auto book. I kind of felt like it was pretty high quality, but the additional color kind of made me curious about one topic in particular, the migration from origination to the small, pretty small piece, less than 4%, but the deep subprime credit of 9.2 million. You know, how are you guys monitoring that? How do you see it going from wherever it was, super prime or prime you know to that level are you seeing customers that may have lost a job or you know how do they get to deep subprime and then if they're not past due what you know what is it because their balances are higher or what's driven them to be a deep subprime credit

you know what we found in study kind of finds it might have been a mispayment might have been even some small medical collection that really drove their score down lending didn't have anything to do with it from what we saw. Part of that credit's declined, and it's pretty marked on both sides. So not too big of a surprise given there being a little bit of a K-shape here than probably most that are in this business into that higher credit score bucket to begin with, and it's kind of proven itself out the way I see it, the portfolio.

Brett, here's what we really hope to clean out of this, because we did give you extra color. We kind of sat around and talked about the fact that we kind of gave probably more color than we would normally do or probably normally should do. Here's what we really hope that you looked at and saw in there. It's still in incredibly good condition. I mean, it ends up being such a non-event for our portfolio and the amount of exposure that you really can shake it all the way down to. We were really excited to put these numbers out there just so you could see how stable it really is.

Okay, that's helpful. Well, yeah, I haven't really been worried about that piece of the book, but, you know, the color kind of made me curious about a few topics on it. So I appreciate the color on that.

We talked about that because we were a little concerned. I mean, it's like – I mean, it's still so small in the whole scheme of things.

Yeah. Last question for me, just was hoping for, I've had some other banks talk about getting maybe more aggressive with hiring some mortgage lenders. Mortgage banking is 20% of revenue, which has been fairly consistent. 100%. I know there's a rate component to this answer in terms of what happens from here, but are you guys doing anything different in mortgage? Do you want to develop that further in the coming quarters? And just any thoughts on fee income drivers, if not mortgage in the 26?

Thanks. Because it's all about the volume that's there. We've been very thoughtful in trying to make sure that we put this thing into a negative position. We've been trying to I just tread water until it picks back up. You know, trying to find good producers is probably what we've kept our infrastructure.

Great. Appreciate the color. Thanks, Brad.

The next question comes from Joe Yanchunis with Rabin James. You may proceed with your question. Good afternoon.

So I was hoping to start with the Bank of Houston. You know, how much revenue upside do you see beyond the announced cost saves? you know, particularly from cross-selling or balance sheet optimization?

We do believe that we would love any of the modeling we did. You know, that's not necessarily any of our numbers, but we will certainly try to put it.

Yeah, I think, look, we know that they've done a really good job up to this point. We do have a little bit more scale than they do, and so I think we'll be able to leverage some of the stuff that we have to help them. And quite frankly, I think Treasury is going to be one of the biggest ones that will. And they've done a good job of figuring out how to, you know, fund in that bank. And it's based on the theory that we've said about everything else we do. I mean, they've built strong relationships just like we try to do and go leverage them. We think that we can help them even more with what – there's definitely some opportunities there.

I appreciate it, and I certainly understand revenue synergies not being baked into the model, just trying to see or kind of get a sense for how, you know, much leverage there is, you know, within the income from expanding to the startup business in Houston. And then, you know, aside from the upcoming integration, you know, are there any other technology investment priorities for 2026 you guys are looking at?

You know, I would probably go a little bit – I mean, we're always doing something on technology, trying to make sure that we stay pretty relevant in that area. But I think one of the things that we're really trying to make sure of is that between – we've got an Abrigo conversion that's coming up so that we can implement some better workflows and do some stuff on the credit side for the loan operations. But we're also focused on trying to make sure that we continue to enhance the credit side of the bank to make sure that we're prepared to bring on a bank that – I mean, their average loan size is probably a little smaller than ours. If you look at what they're doing, we've got to be smart. I mean, you hear about all these different acquisitions that come along, and they kind of don't pan out like everybody thinks. Well, you've got to make sure that you're putting as much effort into embracing what they're doing so that we don't go screw up what they've already built. And if you go back to your other question about the different synergies and stuff that we can bring to the table, you know, you really don't know until you start getting in there and meeting the quality of the talent and everything that they have. I mean, we're quite impressed with what we're seeing. And we see opportunities that make us very – that we made to go into – if you take some of the stuff that we have to offer and with the team that they have in place, I think that we can –

And I just have a couple of ticky-tacky modeling questions here. Kind of starting off to piggyback off Woody's question on the NEM. Do you have a sense for what new loan yields were in the fourth quarter?

I mean, I think they're in the mid. But, I mean, we kind of had to build in some of that stuff to try to make sure that, you know,

people seeing some of the things, we've done a pretty good job at locking some of that.

Oh, absolutely. That's – I think high six is pretty good. And then lastly for me, I was hoping you could kind of disaggregate the $500,000 that you guys called out in acquisition-related expenses and then what you spent on consulting. Is there any way to break that down to get more of a core number?

$500,000. I'm sorry.

Both of the, with us through, that's in that.

So this year we'll have a little bit more.

We'll have, yeah. Once, once those projects are done, I mean, we'll, we, we may have a little bit, had some amortization expense coming on from some of the items that are capitalized, but the, but the consulting expense.

Well, thank you for taking my questions.

Before we move on to the next question, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the queue. Our next question comes from Stephen Skowden with Piper Sandler. You may proceed with your question.

Hey, good afternoon, guys. I'm curious from an expense perspective, I think, Steve, I think I heard you say maybe expect expenses to be up a little bit modestly higher in the first quarter from the fourth quarter. but how do you think about full-year expense build and what sort of additional new hire activities kind of built into those expectations?

Let's back up for non-interest expense. We did overall kept it pretty flat, right around the $33 million a quarter. I mean, we've got just normal salary adjustments kick in, looking for some mortgage commercial side as well. You know, we had originally planned for that. We do have, again, some of these we think we'll be getting toward the end of some of the capitalization of a few of these projects that will start kicking in as we get a little bit later on, maybe halfway through the year.

You know, we've played through that. We'll continue on with that. I anticipate seeing another one or two in the first quarter. I think we'll kind of finish up the year like where we thought we would be. that's about nine new lenders that we would over a two-year period that's what we thought we would do and i think you couple that with h coming on here in the in the early part of the second quarter i think those will but expense wise keep in mind what we've always said is i mean we're chasing a six months or sooner break-even point on any of the lenders that we're trying to hire yeah no for

sure and the expense management the steaks point year over year was was really good um that's helpful. Thank you. And then from a deposit beta perspective, if my math is right, it looks like total deposit betas for the hikes we've seen, I mean, for the cuts we've seen so far have been around the 30% range. Is that kind of the right way to think about deposit betas moving forward or could that be more difficult just as deposit costs on an absolute basis, you know, move to the

lower end it's probably just a tad higher we've got we've got a number of the public funds that don't reprice until you know the first day of the month so it lags a little bit so i mean on monitoring that and and keeping it uh kind of consistent with those levels um if there's certain places we can uh will on in any area or trying to be mindful of what what else we're seeing out there but that's that maybe just a little bit we actually would see steve just keep

in mind is what we've always said that we do is when we still do exception-based pricing we do it on both sides of the balance sheet and which tells you we're not afraid to make the cuts that we need to make but we may have we may have some some adjustments that come back in there around a little bit of that take our name as much as right and then maybe just last thing for me the the loan

growth guide is encouraging up there mid mid the high single digits what gives you confidence kind of in that degree of ramp kind of from what what has been the net growth over the last couple years Is it BOH? Is it the new hires? Is it just better customer demand, a combination of all of the above? Any color you can give to there would be great.

Yeah, I think it's all of it. I mean, if you look at where BOH has been, I mean, let's even get an opportunity to have done something with BOH. If they had tons of liquidity, I mean, he has talent in place. I mean, that's one of the things we're able to bring to the table to help them augment their liquidity to some extent so that they don't have as much of a cap that they're having to deal with. But you look at the hires we've done. I mean, organic growth is what we're as focused on our organic growth. Acquisition is nice, but we love the organic growth. And we love the team that we have in place and the team that we've assembled and the relationships that they've been able to build. You know, one of the things we've been very upfront about is, you know, we've got a couple of projects, and one of them is making sure that we keep the approval processes and everything working like it should so that we continue to scale this company in a good but safe manner. And a lot of that is making sure that we can actually meet the needs that our customers actually have and the stuff that these lenders are trying to bring to the table. It is not just through an acquisition. It is definitely with some of the organic opportunities that I think we have on our own plate.

That's great. Thanks, Gloria Keller, and congrats on a great end of 2025 there.

Thanks, Stephen. Thanks, Stephen.

This now concludes our question and answer session. I would like to turn the call back over to Curtis Griffith for closing comments.

Thank you, Operator, and thanks to everybody that participated in today's call, including we delivered some pretty strong results over the past year while positioning South Plains for accelerating the growth in the year ahead. We've recruited outstanding lenders across our markets, and we believe they're going to bring new relationships to Citibank. We also entered into a definitive agreement to acquire Bank of Houston, which will provide important scale in the fast-growing Houston MSA. We've laid the foundation to be a larger community bank, which includes making necessary investments in technology, systems, and processes to grow efficiently. We've accomplished much, but we're not standing still. We continue to look for other attractive franchises. We believe we have the capacity to acquire maybe another bank of a similar size range.

But we will also selectively recruit high-quality lenders in our market and, as Corey just said, really push for organic growth.

I'm very excited for what lies ahead for our employees, our customers, and our shareholders. Thank you again for your time today.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.