South Plains Financial, Inc. (SPFI) Q3 2026 Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. 3rd Quarter 2026 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. And, as a reminder, this conference call is being recorded. Additionally, the company has issued their earnings press release and earnings slide deck presentation, which are available on the SEC's website, as well as on the news and events section of their website. SPFI.Bank. Please refer to slide two of the presentation for management's safe harbor statements regarding forward-looking statements. All comments expressed or implied made during today's call are made only as of today's date and are subject to the safe harbor statements in the presentation and earnings release. In addition, please refer to the slide two of the presentation for the company's disclaimer regarding the use of non-GAAP financial measures. A reconciliation of these measures to the most comparable GAAP financial measures can be found in our presentation and earnings release. On today's call, we have Curtis Griffith, Chairman and CEO, Corey Newsome, President, Steve Crockett, Chief Financial Officer and Treasurer, Brent Bates, Citibank's Chief Credit Officer, and Tyler Haynes, Citibank's Chief Banking Officer. I would now like to turn the call over to Mr. Curtis Griffith. Please go ahead.

Thank you, Operator, and good afternoon, everyone.

Before I turn the call over to Corey, I want to take a moment to thank our employees, our customers, and our shareholders for their support over the years. As I prepare to retire as Chief Executive Officer at the end of this year, I've been reflecting on what we have built together, and I could not be prouder of what Citibank and South Plains have become. Over the years, we've built a strong relationship-driven franchise, a unique culture, and a team that has always remained committed to serving our customers and communities. What gives me the greatest confidence about the future is the people we have in place today. The leadership transition that will be completed at year-end has been planned for many years, and Corey and Steve, along with the rest of our experienced management team, have been leading the day-to-day operations for quite some time. We have worked hard to build a deep and experienced leadership team while also developing the next generation of talent across the company, including Tyler Haynes, who joins us on the call today, and many others who represent the future of South Plains. While my role will change at year end, I will remain involved as chairman of both South Plains and Citibank. My focus will shift toward helping guide the long-term strategy of the company and the bank alongside our boards of directors and management team. I am confident that South Plains is in an excellent position with a strong balance sheet, attractive growth opportunities, and a talented leadership team that's well-prepared to continue building on our success. The strong results we delivered during the third quarter, including near-record earnings per share, stable profitability, and solid organic loan growth reinforce that confidence and demonstrate the continued success of the strategy we have been executing. With that, let me turn the call over to Corey.

Thank you, Curtis, and thank you for your leadership, support, and guidance over the years. It's been a privilege to work alongside you for many years. The culture, customer relationships, and reputation that we have built over the past several decades have created a tremendous foundation for the future. While I'm honored to step into the CEO role at your end, I'm equally pleased that Curtis will remain chairman. I look forward to his support as chairman as we execute our strategy of expanding our lending platform across our high-growth Texas markets while pursuing disciplined acquisition opportunities. Most importantly, the bank is in an excellent position today, and I'm excited to build upon the strong foundation that our net income increased to $20.8 million compared to $19 million in the second quarter. We also delivered diluted earnings per share of $1.06 as compared to $0.96 in the length quarter. Return on average assets improved to 1.53% while our efficiency ratio improved to 58.1%. Importantly, we generated these results while maintaining our disciplined approach to credit and risk management as we We continue to build the long-term energy power of the bank. Turning to slide 6, loans held for investment increased by approximately $60 million as compared to the length quarter annualized organic loan growth and ended the period at The increase was driven by healthy loan production across our markets and was achieved despite the early payoff of a $25 million loan that was fully secured by the borrower's deposit account as well as an anticipated payoff of a large relationship. The fact that we were able to deliver this level of growth despite these payoffs reflects the strength of our underlying loan pipeline and customer demand. As we've discussed throughout the year, we expected loan production to accelerate as we move through 2026, and we believe the second half is developing largely as anticipated. While loan payoffs continue to occur in the normal course of business, we believe our loan pipeline remains healthy and customer demand remains strong across both our metropolitan and community markets. Based on current production trends and pipeline activity, we remain confident in delivering our full-year loan growth guidance in the mid-single digits, compared to 6.81% in the second quarter. Although the market interest rate environment remains volatile, we remain focused on balancing prudent growth with profitability as we continue to expand relationships throughout our footprint. Turning to slide seven, our major metropolitan markets remain an important growth driver for the bank. Loans in Dallas, Houston, and El Paso increased by approximately $23 million during the quarter to $1.71 billion and represented 44.6% of our total loan portfolio as of September 30th. We continue to see attractive opportunities across these markets and remain encouraged by the activity levels, loan pipelines, and long-term growth prospects in each of these regions. In Houston specifically, we continue to be pleased with our progress following the Bank of Houston acquisition. It's important to note that much of our team's focus has been on the integration, the system conversion process, and employee training since we closed on April 1st. With those efforts now largely behind us, our Houston bankers are now able to focus more fully on business development and growth opportunities available in one of the most attractive banking markets in Texas. We are also beginning to see the benefits of combining the two organizations, including enhanced lending capacity, additional liquidity, and the ability to pursue opportunities that may have been previously constrained. More broadly, expanding our lending platform remains one of our top priorities. We continue to benefit from the disruption across the Texas banking industry, particularly as competitor mergers create opportunities to recruit experienced bankers and deepen customer relationships. During the quarter, we added experienced bankers in Lubbock and in College Station, and we remain active in identifying talent that fits our culture and relationship-based approach to banking. Given the ongoing consolidation across our markets, we believe there will continue to be opportunities to grow our team and drive future organic loan growth. As we continue to execute our organic growth initiatives, M&A remains an important component of our long-term strategy. We continue to evaluate opportunities that have the potential to strengthen our franchise, expand our presence in attractive markets, and create long-term shareholder value. Importantly, we will remain disciplined in our approach if any potential transaction must align with our culture, community banking model, credit standards, and financial objectives. We're not interested in growth for growth's sake, and any acquisition must create long-term value for shareholders. Given our strong capital position and the scale of our platform, we believe we are well positioned to pursue the right opportunity should one emerge. Kipping to slides 11 and 12, non-interest income totaled $13.8 million during the quarter, compared to $14.1 million in the second quarter. The modest decline was primarily driven by lower bank card services and interchange revenue, as the prior quarter benefited from incentive income that did not repeat in the third quarter. Mortgage banking revenues totaled $4.9 million and benefited from a $1.6 million increase in the value of our mortgage servicing rights asset as market interest rates moved higher during the period. While higher interest rates have created additional pressure on mortgage origination activity across the industry, our mortgage operation has not been a drag on earnings during this challenging environment and should be positioned to benefit when the activity eventually improves. Outside of mortgage banking, our diversified fee-income businesses continue to perform well and remain an important contributor to the bank's overall profitability. For the third quarter, non-interest income was 21% of bank revenues, essentially flat with the link. Now I'd like to turn the call to Steve to discuss our third quarter results in more detail. Steve?

Diluted earnings per share, $1.06, compared to $0.96 from the linked quarter. The increase was driven by strong organic loan growth prior to the two large payoffs in performance and the reduction of acquisition-related expenses in connection with our BOH acquisition. Importantly, these results were achieved while absorbing approximately $875,000 of accrued expense associated with Curtis's retirement, which, combined with what was recognized during the second quarter, are now largely behind us, set by the benefit of higher mortgage servicing rights valuation adjustment as interest rates moved higher during the quarter. Turning to slide 14, net interest income was $51.5 million for the third quarter, up $1.1 million from the linked quarter. The increase was primarily driven by a $53 million increase in average interest-earning assets during the quarter. Our net interest margin on a tax-equivalent basis remained stable at 4% during the third quarter. As we've noted previously, reported margins in certain prior periods benefited from problem loan interest recoveries. we have maintained a stable continued volatility and interest rates remained on maintaining our name at current levels while growing our balance sheet as we execute our organic loan growth strategy which we believe will drive earnings growth and improving returns of this increase by 20 million dollars from the linked quarter at 4.66 billion dollars at a 25 million dollar cd secure loan that paid off during the third quarter by liquidating the collateral not unexpected and will be additive to our net interest margin, cost, and non-core funding sources to leave the bank while continuing to generate growth in core customer deposits. This reflects our efforts to optimize our funding base following the Bank of Houston acquisition. $1.18 billion can represent 25.3% of total deposits at quarter end as compared to 24.8% at June 30th. It's improved slightly during the quarter, declining one basis point to 207 basis points as compared to the linked quarter. Looking ahead, we continue to see opportunities to manage select higher cost funding sources, which remains an important lever in maintaining our profitability at current levels. Turning to slide 17, a ratio of allowance for credit losses to total loans was 1.38% at September 30, down from 1.41% in the prior quarter. During the quarter, we recorded a provision for credit losses for loans of $1 million, primarily driven by organic loan growth and net charge-off activity. We continue to believe our reserve levels appropriately reflect the risk profile of the portfolio and position us well for a range of economic conditions. Modesty increased in non-performing loans during the quarter, primarily related to bank of Houston acquired loans. While non-performing loans increased to 40 basis points of total loans, overall levels remain low, and subsequent to quarter end, we have already seen the largest of these credits return to performing status. We anticipated some migration within the acquired portfolio, and our credit team continues to actively work these loans to help ensure a proper resolution. Next on slide 19, non-interest expense decreased by $1.8 million to $38.1 million in the third quarter as compared to the linked quarter. The decrease was primarily driven by lower personnel cost, a reduction in mortgage commissions, and the absence of acquisition related expenses associated with the Bank of Houston transaction, which were largely behind us following the second quarter. Taken together, our efficiency ratio improved to 58.1 percent in the third quarter from 61.6 percent in the linked quarter, reflecting both continued revenue growth and our ongoing focus on expense discussed on investing and growth opportunities while maintaining strong operating leverage across the organization. Moving to slide 21, we remain well capitalized with tangible common equity to tangible assets of 10.32% and a common equity tier 1 ratio of 14.2% at quarter end. Our strong capital position provides flexibility to support both our organic growth initiatives and disciplined acquisition strategy. The book value per share was $29.23 as of September 30, 2026, compared to $29.60 at June 30. The modest decline was primarily driven by a decrease in accumulated other comprehensive income of $25.5 million, given the large rise in interest rates during the quarter, partially offset by $17.4 million of net income after dividends paid in the third quarter. We remain focused on returning capital to shareholders, having announced today that we will pay our 30th consecutive quarterly dividend during the fourth quarter. We continue to view capital allocation through the lens of balancing growth, profitability, and shareholder returns. This concludes our prepared remarks. I will now turn the call back to the operator to open the line for any questions. Operator?

Thank you. We'll now be conducting a question and answer session. If you'd 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 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions.

Thank you.

Our first question is from Brett Rabbiton with StoneX Group.

Hey, guys. Good afternoon. It was good to see the margin stability and the management of the cost of funds. I was just curious, wanted to talk. I know there's a lot of variables that go into it, but just your thoughts on the margin from here And, you know, if there's additional hot money that you might be, you know, letting go. And then just, you know, any thoughts on where you're seeing new loan production relative to the current portfolio yield?

Steve, I'll start. I'll let Brent or somebody else talk about new loan rates. But the margin where we did have loan growth in the quarter, you know, with the excess liquidity we've been carrying, that other net interest margin, loan yields were down just a little bit last quarter on the deposit side. We saw a little bit. We tried to move a few things, but overall, you know, the cost was down just slightly, but we continue to try to manage overall deposits, some of the non-core stuff, and push out some of that that we don't need. Just really want to try to keep the NIM in a a fairly close range of, it can always go up a couple of basis points or down a couple of basis points. Somebody else want to talk about new loan rates?

I mean, this is Brent on those rates come up a little bit.

They're just continue to maintain. We've got a lot of our internal challenges that we do loan operating system. A lot of that stuff is kind of getting put to the wayside. And so there's really been a focus back on trying to push things through the pipeline and get it done. And the pipeline is still really good. So I think that's going to continue too.

That's helpful. And then I wanted to talk about expenses and the hires. I didn't hear the number on the number of hires for Lubbock College Station. But a lot of, you know, I don't call it noise, but a lot of things going into the expense run right from here, maybe. So the $850 is probably coming off from, you know, Curtis's retirement. But, you know, any thoughts on, I know there's $4.6 million of expense savings from Bank of Houston. You know, any thoughts on the pace of the expense base from here? And then, you know, a lot of banks have been telling me that there's been numerous opportunities to hire from two particular banks.

And just wanted to see if that higher pipeline, you know, might still be running pretty strong. let me let me let me take off and talk about the new hire so we we picked up a couple new hires during this quarter uh we were staying very very focused this is something that's very very important to us so we're you know we're pretty thoughtful about the way we go about bringing new talent on and we're trying to make sure that they're good fits in the in the process of doing this uh i think we're as we're as focused we've ever been on continuing to hire talent and opportunities exist and i mean we're we're in the And, I mean, we're in the midst of it as we speak. So I think that part is going to keep going. Steve, I mean, the expense side.

Yeah, I mean, overall expenses, I mean, if you go back and look, generally we're down a little bit, all things being equal. I wouldn't be surprised. We definitely should be down based off of what you talked about, the 875 number. But outside of that, we're generally down a little bit. But, you know, when we click over into the next year, I mean, there's always new things that come on, some of that on new hires that we get in. After we get to next year, again, I would think those do start going up. But I'd like to see non-interest experience.

Always looking for – but sometimes it's just the long game, too, and I think that was some of our success this quarter. When you've got somebody that you keep an eye on and keep relationships with, if you just drip on them and stay with them and wait for it to be the right time for them to join your team.

And so we'll continue to do that as well as looking for. if I'm, if I'm reading the comments correctly, it sounds like the expense base could be a little lower than the fourth you know, but then have some, some build back over 27, you know, as you continue to grow the franchise and all those types of things.

I would agree with that.

Okay. Great. Appreciate the color.

Thanks, Brad.

Thank you. Our next question is from Joe Yanchunas with Raymond James.

Good afternoon, guys.

So thank you for taking my questions. I was kind of hoping to start with loan growth a little bit. You know, you talked about how you added a couple more lenders. You have, you know, some past hires that are continuing to ramp. Can you talk a little bit about how the pipeline's developed over the past few months and, you know, do you think you'll be able to sustain this momentum? you know, into 27 with that kind of mid-single-digit loan growth or potentially accelerate beyond that?

Yeah, Joe, I'll start off. I mean, our pipeline is much stronger than the first, and we continue to have a very – All right.

And then – I'm sorry, go ahead.

Migrate how the metro markets have continued to improve.

Yeah, so our metro markets now are really nearly half, you know, in prior years of new production.

Joe, I think that's a reflection. This is Corey. I think that's a reflection of not only the talent that we already had in place, but the talent that we've been able to bring across and the things that are coming.

And, you know, you talked about some of the payoffs you had earlier in this quarter. As you look at the portfolio today, are there any other sizable payoffs that you're anticipating over the next couple quarters that we should be thinking about?

Yeah, this is Fran. I mean, I think it's kind of become, I don't want to say the norm, but we've kind of baked that. We're always going to have likely in the fourth quarter.

In my mind, I factored. can kind of reiterate, we've mentioned this before. We have over the last 18 months been in a position trying to exit some relationships. We're not there anymore. We feel really good about the quality of the portfolio as it exists today. And we're not in any kind of a position where we're trying to exit some stuff that we think doesn't really fit. We do like what we have. We think we've kind of accomplished all those things that we were trying to do.

Well, you know, if you were to just kind of focus on the credit of the portfolio, I mean, It looks like non-performing loans ticked up a little bit, not to an alarming rate or anything. But can you give us some color on what drove those increases, you know, any sort of industry concentration or, you know, perhaps if those were originated, thank you, Houston?

Yeah, those were both. We had a few migrate to non-performing and hands on those. In fact, the largest of the two, we're running our normal process, the ones that we knew the risk.

I think we missed one by a week.

Okay, that's helpful.

And then last one for me here. So we've recently seen Mechanics Bank sell indirect auto loans near book value. While Truist exited, it's near prime auto business. I know we've talked about the auto portfolio over the past few years and just kind of given it strong credit performance. But have you ever considered selling some of that portfolio today to redeploy capital into some other commercial lending vehicles?

A little bit challenged.

We're just just so careful about what we put on our books and standpoint we've got we still have plenty of liquidity to loan out we're i just don't think that's something that we're roughly and so i think can at time to time be a hot button when different reports come out but that's overall why we like to stay on that end of the credit whether that a whole lot better yeah the spread just remember

over 99 of that portfolio onto the books like this well um i appreciate it thank you for taking questions as a reminder if you'd like to ask a question please press star 1 on your telephone keypad our next question is from Steven scouting with Piper Sandler yeah good afternoon everyone I wasn't on the call last quarter so I

just want to say congrats on the coming transition and very congrats on the appointment and nice to have Tyler on the call so lots going on but obviously a lot of hard work been done through the years to get you there so congrats to all. Thank you, sir.

Thanks, David.

Definitely. I guess going back maybe to Brett's earlier question around expenses, I'm not sure if I heard you actually say, do you know how much you have in terms of remaining cost saves related to the Bank of Houston deal and when you'd expect to extract those remaining savings? Not necessarily in the third quarter run rate, but would be in this fourth quarter run rate, I guess. Is that the right way to think about it?

I was in Q2. There were some of that that ran through.

Okay, great.

Back to the fact that we've moved so quickly on the conversion.

Yeah. Yeah, no, that's impressive. The timeline is great. And maybe just as you think about the mid-single-digit loan growth, I'm curious how, where do you expect the loan-to-deposit ratio to go from here, kind of how you're thinking about the balance sheet overall. Securities have been trending down for the last couple quarters. So where do you want the composition of that balance sheet to go to kind of, you know, maximize profitability for the bank?

Generally, say, you know, loan and deposit ratio up to 85% would be a little bit different at different times of year. But that's a number we would like to see. As far as securities go, yeah, the numbers come down. We have, of late, started buying a little bit more just maybe to offset some of the paydowns during each month. Not looking to increase overall securities portfolio, but don't really want that to run down too much more because we do use those for pledging on public fund deposits. And so we like that. And, I mean, definitely yields have been higher on some of that, but overall still want to stay relatively short in that portfolio overall. So we want to make loans, but we're too far out of whack.

I agree with Steve completely. We are very focused on the fact that, ideally, we would like to stay around an 85% loan deposit rush. And that's why we stay so focused on the talent. Just trying to keep a balance there, credit quality, and making sure that we like what we're bringing on.

And then maybe just last thing for me, like, how are you seeing, I know you noted new loan yields in the high six, maybe. How are you seeing spreads hold up in terms of those new loan yields versus maybe average deposit costs? And within that, how do you expect the NIM to kind of hold up with, you know, the prospect of another couple of 25 basis point hikes really the last couple years we've we've gotten the the overall not a whole lot of uh overall effect to us you're definitely right as far as deposit rates

out there cvs and money markets and other things that are now unfortunately back up in the fours mid fours new new loan rates upper sixes even that term but you know i think overall portfolio that we've got.

Keep in mind, we say this all the time, but we kind of got to live to it a little bit. I think we've done a pretty good job with that. We use exception-based pricing as much as we can to try to counteract as much of this, and we try to make sure that our team has the authority to make the kind of decisions so that we can kind of keep this stuff in place.

Yeah, yeah, good. Awesome. Thanks for the time, guys. Congrats on a really nice quarter. Thank you. Thanks, Stephen.

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

Thank you, Operator. Thanks, everyone, for joining us today. As this is my final earnings call as Chief Executive Officer, I want to take a moment to thank our shareholders and the analysts who have followed South Plains for their interest, support, and confidence in our company over the years. I've greatly valued the relationships we've developed and the opportunity to share the South Plains story with you. I could not be more confident in the position of the bank today. We have a strong balance sheet, an experienced leadership team, and meaningful opportunities to continue growing across our markets. While my role will change at year end, I'm excited to continue working with Corey and the rest of the team as chairman as they execute our strategy and build the long-term earnings power of the bank.

Thank you again for your continued support of South Plains Financial.

This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.