Earnings Call Transcript - SPFI Q1 2026

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to South Plains Financial, Inc. First Quarter 2026 Earnings Conference Call. As a reminder, this conference 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.

Steve Crockett, Chief Financial Officer and Treasurer

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 today are available on the SEC's website as well as the News and Events section of our website, spfi.bank. Please refer to Slide 2 of the presentation for our 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 Slide 2 of the presentation for our 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. I'm joined here today by Curtis Griffith, our Chairman and CEO; Cory Newsom, our President; and Brent Bates, City Bank's Chief Credit Officer. Curtis, let me hand it over to you.

Curtis Griffith, Chairman and Chief Executive Officer

Thank you, Steve, and good afternoon. We delivered solid first quarter results, highlighted by strong profitability, continued improvement in credit quality and disciplined balance sheet management, as can be seen on Slide 4. While the market backdrop has been uncertain, we have continued to execute our strategy designed to enhance the earning power of City Bank. Our strategy remains focused on expanding our lending team across our high-growth Texas markets while also pursuing accretive M&A. We have a meaningful organic growth opportunity as we expand our lending team across our key Texas markets. We continue to selectively add experienced lenders who fit our culture and can bring long-term customer relationships to the Bank. While we remain cautious and conservative given the uncertain macroeconomic backdrop, we are excited by the opportunities that we see to further expand our team and drive sustainable organic loan growth over time. Turning to our M&A strategy and the Bank of Houston. We were pleased to complete our merger on April 1, and officially welcome the BOH team to City Bank. We've spent a significant amount of time on the integration since announcing the merger in December to ensure that our new employees are welcomed into the Bank and positioned for success. We continue to be impressed with the BOH team, the dedication they have to delivering strong results in the Houston market and the similarities in our cultures. From an operational perspective, things are going according to plan. We expect the core conversion to be completed in early May and continue to see opportunities to reduce BOH's cost of funds over time. In fact, steps have already been taken to optimize the balance sheet as there has been a reduction in broker deposits and Federal Home Loan Bank borrowings starting in Q1. Overall, we believe BOH is a good strategic fit with low execution risk, and we continue to expect the merger to be 11% accretive to our earnings in 2027 with a tangible book value earn-back of less than 3 years, which remains compelling. Now that the BOH acquisition is completed, we will continue to explore additional M&A opportunities. However, our approach has not changed. We remain highly disciplined and patient. And to date, we have not identified another transaction that meets our strict criteria. As we've said many times in the past, we're not interested in growth for growth's sake. Any potential partner must align with our culture, credit discipline and community banking focus while also making strategic and financial sense for our shareholders. Turning to the market backdrop. We remain cautious over the near term as inflationary pressures appear to be resurfacing, driven in part by elevated energy prices related to the ongoing conflict in the Middle East. These dynamics may limit the Federal Reserve's ability to further reduce interest rates and could act as a headwind to economic activity and loan growth as we move through the year. This could also limit our ability to further reduce our cost of funds. While the near-term outlook is uncertain, we continue to be positive on the longer-term potential of the Texas economy, especially compared to the broader United States. Corporations continue to move their operations and headquarters to Texas, attracted by the state's pro-business environment, favorable demographics and ongoing population growth, which provides a constructive backdrop for economic growth and relationship-based banking. To conclude, we believe that we're in a strong capital position that will allow us to execute our growth strategy and benefit from the many opportunities that we have in front of us. Given our capital position, we remain focused on both growing City Bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. To that end, our Board of Directors authorized a $0.17 per share quarterly dividend on April 16, which will be our 28th consecutive dividend. Now let me turn the call over to Cory.

Cory Newsom, President

Thanks, Curtis, and hello, everyone. Starting on Slide 5, our loans held for investment decreased by $41 million to $3.1 billion in the first quarter as compared to the linked quarter. The decrease was primarily due to the expected early payoff of a $30 million multifamily loan, which we discussed on our fourth quarter call, and $24 million of seasonal net paydowns of agricultural loans. Importantly, we experienced strong unfunded loan commitment growth during the quarter, driven in part by our new hires, which was notable. These commitments are largely in construction and will fund through the year. Our yield on loans was 6.83% in the first quarter as compared to 6.79% in the linked quarter. Excluding problem loan interest and fee recoveries noted on Slide 5, our yield on loans has held relatively steady over the last 4 quarters. While we have not experienced a material impact on our loan yields from the FOMC's most recent 25 basis point reductions in their target interest rate in September and December, we do expect our loan yields to moderate in the quarters ahead. As Steve will touch on, our goal is to maintain our margin as we grow our balance sheet in order to drive earnings growth and returns. Turning to Slide 7. Our loans held for investment in our major metropolitan markets of Dallas, Houston and El Paso declined by $23 million to $1 billion as compared to the linked quarter, largely due to the expected early payoff of the multifamily loan that I just mentioned. Looking ahead, we also expect another early payoff of approximately $34 million multifamily loan as some large payoffs will continue to be a headwind to loan growth. Importantly, our loan pipeline remains healthy, and we remain confident in delivering our loan growth guidance for the full year, albeit towards the lower end of our mid- to high single-digit range. We will also continue to execute our organic growth strategy as we look for lenders who fit our culture and can bring deep local market knowledge and long-term customer relationships to the Bank. We continue to benefit from the consolidation that the Texas banking industry continues to undergo as large regional and out-of-state institutions continue to acquire Texas-based franchises. Additionally, South Plains remain committed to being a Texas-focused community bank with experienced local bankers empowered to serve their markets. As competitors integrate acquisitions or streamline operations, we continue to attract both customers and talented bankers, reflecting the strength of our culture and conservative operating philosophy. Importantly, South Plains occupies a unique position in our market, offering the product breadth and capabilities that smaller banks cannot match while delivering the personalized service larger banks often struggle to provide. We believe this balance provides a durable competitive advantage as we move through 2026 and beyond. Since launching our recent organic growth strategy, we have completed about 50% of our expected hiring occurring across our Dallas, Houston and Midland markets. I continue to be pleased with the quality of bankers that we are speaking to and remain optimistic on our ability to recruit exceptional talent to the Bank through the balance of the year now that we have cleared the first quarter, which is typically a slower time for hiring. Skipping ahead to Slide 11, we generated $11.3 million of noninterest income in the first quarter compared to $10.9 million in the linked quarter. The increase from the fourth quarter of 2025 was primarily due to an increase of $1.5 million in mortgage banking revenues, partially offset by a loss of approximately $800,000 in an SBIC investment. Mortgage revenues grew mainly as a result of the quarter-over-quarter change of $915,000 in the MSR fair value adjustment as can be seen on Slide 12. Overall, we continue to be pleased with how our mortgage business is performing in this low transaction and interest rate environment, and we believe we are well positioned for the eventual upturn in volumes. For the first quarter, noninterest income was 21% of Bank revenues, essentially flat with the linked quarter. Continuing to grow our noninterest income remains a focus of our team. I would now like to turn the call over to Steve.

Steve Crockett, Chief Financial Officer and Treasurer

Thanks, Cory. For the first quarter, diluted earnings per share were $0.85 compared to $0.90 from the linked quarter. This decrease was primarily due to acquisition-related expenses, which I'll touch on in a moment, and the SBIC investment loss, partially offset by a lower provision for credit losses. Starting on Slide 14, net interest income was $43 million for the first quarter, in line with the fourth quarter's result. Our net interest margin on a tax equivalent basis was 4.04% in the first quarter as compared to 4.00% in the linked quarter. Our first quarter NIM was positively impacted by 5 basis points due to $545,000 of nonaccrual loan interest recovery. Excluding the problem loan interest and fee recoveries noted on this slide, we have delivered steady NIM expansion through 2025 which has started to moderate. As a result, our goal is to maintain our profitability at current levels while growing our balance sheet, which will drive earnings and returns. As outlined on Slide 15, deposits increased by $154 million or 4% from the linked quarter to $4.03 billion. During the quarter, we experienced strong organic growth across retail, commercial and public fund deposits. As in prior years, we expect a portion of the public funds to flow back out of the Bank and for other depositors to see outflows in the second quarter as customers make their annual tax payments. As a result, we would expect deposit growth to be flat to down in the second quarter before returning to growth in the second half of 2026 before you factor in acquisition deposits. Noninterest-bearing deposits modestly increased by $11 million in the first quarter and represents 25.7% of total deposits at the end of that quarter as compared to 26.4% at the end of the linked quarter. Our cost of deposits decreased by 4 basis points to 1.97% compared to the linked quarter as we have continued to reprice our deposit base lower following the FOMC's most recent 25 basis point reduction in December. Looking forward, we expect our cost of funds to hold steady in the second quarter, absent further rate reductions by the Fed and before we factor in the cost of the acquisition deposits. Turning to Slide 17, our ratio of allowance for credit losses to total loans held for investment was 1.44% at the end of the first quarter, stable from the prior quarter end. We recorded a $260,000 provision for credit losses, which are related to unfunded loan commitments in the first quarter, which compares to $1.8 million in the linked quarter. The decrease in provision expense was largely attributable to the decrease in loan balances, combined with a decrease of $4.8 million in nonperforming loans and a $460,000 decrease in loan net charge-offs. Skipping ahead to Slide 19, our noninterest expense increased $2.5 million to $35.5 million in the first quarter as compared to the linked quarter. We had a $1.8 million increase in personnel expenses, mainly due to annual salary adjustments and higher incentive-based compensation. We also had a $542,000 increase in professional services expenses. There was approximately $1.5 million in acquisition-related expenses in the first quarter of 2026, of which $1.2 million was for professional services as compared to approximately $500,000 in the fourth quarter of 2025, all of which was for professional services. I'll touch on our expectations for the second quarter in a moment. Moving to Slide 21, we remain well capitalized with tangible common equity to tangible assets of 10.48% at the end of the first quarter, representing a modest decline from the end of the fourth quarter. Tangible book value per share increased to $29.65 as of March 31, 2026, compared to $29.05 as of December 31, 2025. The increase was primarily driven by $11.8 million in net income after dividends paid. Turning to Slide 23, we provided high-level financials for BOH as well as spot metrics for key financial metrics for the pro forma combined bank at March 31, 2026, to help you with your modeling of South Plains looking to the second quarter of 2026. At or as of the first quarter ended March 31, 2026, consolidated BOH had approximately $632 million of loans with a portfolio loan yield of 6.94% and $596 million of deposits, where noninterest-bearing deposits represented 16% of that total and interest-bearing deposits had a cost of 342 basis points. BOH had $15 million in borrowings and their NIM was 3.9%. BOH had $226,000 of noninterest income and their noninterest expense was $4 million for the first quarter, excluding transaction-related expenses. Pro forma for the deal for the first quarter, the combined bank's cost of deposits was 210 basis points, and the NIM was 4.02%. This concludes our prepared remarks. I will now turn the call back to the operator to open the line for any questions. Operator?

Operator, Operator

Our first question is from Wood Lay with KBW.

Wood Lay, Analyst, KBW

The pro forma slide deck, Slide 23, is super helpful. Thanks for providing that. You mentioned that you went through some balance sheet repositioning of BOH and it looks like the balance sheet shrank a little bit. Could you just sort of walk through the repositioning you went through? And it sounds like despite the smaller balance sheet, it doesn't impact the EPS accretion outlook.

Steve Crockett, Chief Financial Officer and Treasurer

Yes. Woody, this is Steve. I would just say there were not a lot of big changes during the quarter for them, but it did start changing as they moved on. Some of the liquidity tightened a little bit knowing where the deal was headed. Some of the Federal Home Loan Bank borrowings had dropped from where they had been, some of the time brokered deposits did not get renewed. So there was a little bit of back and forth on some of that with us working with them. That started. We'll continue looking to optimize the balance sheet and seeing what the borrowings would be; they're all short term on that. We'll continue to look at the noncore funding where we can and pare that back. But again, overall, like you said, there's not a huge impact to the net interest margin. Their net interest margin for the whole quarter was 3.90%. As you got closer to the end of the quarter, if you were just looking at the month of March or the end there, it would have been a little bit higher than that.

Cory Newsom, President

Steve and I had many conversations about this. This is a bit more of a marathon than a sprint. We're trying to be very thoughtful on how we manage the balance sheet and knowing that there may even be things on their balance sheet that we can eliminate as a result of assets that come across. We think it blends nicely with what we've done and what we have, but there's definitely room for improvement as we move forward.

Wood Lay, Analyst, KBW

That's helpful color. And as you just mentioned, you think there could be room for improvement, especially maybe repricing some of the higher-cost deposits. How realistic of an opportunity is that in the near term? And do you think that could still lead to some NIM expansion going forward?

Steve Crockett, Chief Financial Officer and Treasurer

The opportunity is real. It's just trying to balance the overall liquidity position we're at, what loan expectations and loan growth expectations are, and finding which deposits we can address without losing customers. We're not looking to lose customers; we're looking at noncore type stuff. The items that are easier to address we will certainly do, but it's part of the overall plan. We want to improve it if we can, but it's about where we end up this year and next year, and doing it in a thoughtful manner. There are definitely some noncore sources that we can look to reduce.

Cory Newsom, President

You also have to keep in mind that BOH does a good job of pricing loans on the other side. What we're really trying to factor in is being prepared for the kind of demand they had to manage down just a bit getting up to this because liquidity kept getting tighter and made it a bit of a challenge on some funding opportunities. That's one of the things we think we bring to the table and how we can help them. We have not wanted to buy the bank and then undermine the benefits we thought we could bring across. There is room to improve deposit cost, but our ultimate focus is to preserve our core NIM from before the acquisition and not diminish it if we can help it.

Curtis Griffith, Chairman and Chief Executive Officer

Woody, this is Curtis. In our last ALCO meeting, they already put together a list of some of the broker deposits and other noncore funding sources, and some of those are non-maturity as well. Essentially, as the higher-cost items hit maturity and payoff dates, we're fortunate right now to have a lot of on-hand liquidity. We want to grow core deposits in the Houston market. As some of these higher-cost, non-core items hit maturity, where we can, we'll pay them off. So yes, we'll get some benefit, but don't lose sight of the fact that, overall, this is still a fairly small piece of our overall balance sheet. It's not going to be a radical improvement in overall deposit costs for us. But on a BOH stand-alone basis, compared to what they were before, we can make a pretty significant improvement.

Wood Lay, Analyst, KBW

I appreciate all the color there. Maybe just last for me, sticking on the NIM and looking at your sort of core loan yields for stand-alone South Plains. If I adjust for the interest recovery, it still looks like loan yields were up quarter-over-quarter. Just curious on the dynamic driving some of that loan yield expansion.

Steve Crockett, Chief Financial Officer and Treasurer

I'll start, and then I'll let Brent jump in. We've seen some loans reprice down with what the Fed did in the fourth quarter, but we also continue to have loans fixed from three to five years ago that remain on the lower end and help mitigate some of the repricing. That has been beneficial to us.

Brent Bates, Chief Credit Officer

A little bit of it is the mix inside the portfolio. Some loan types are yielding better than others, and that mix influences the aggregate yield. Overall, yields are holding pretty well.

Cory Newsom, President

Go back on both sides of the balance sheet. We're still using exception-based pricing where it makes sense. Our first and foremost is to get as much as we can on the loan side, but we won't overpay on deposit costs. There are competitive opportunities where we can be as aggressive as needed if the credit warrants it. We're very focused on NIM.

Operator, Operator

Our next question is from Brett Rabatin with StoneX.

Brett Rabatin, Analyst, StoneX

I wanted to just talk about the loan pipeline and you've added some more lenders and you're going to be over $5 billion bank here in 2Q. I just wanted to see, are any of these new lenders that you're adding in what you call specialized lines of business? And is that something that you guys are thinking about maybe as you get a little bigger, doing some things that might be a little more specialized as opposed to the traditional community banking subset?

Cory Newsom, President

Let me be very clear about this. Of all the lenders we've hired, there's not a single one that we've hired that's going to put us into something we don't think we have good expertise in doing or that takes us out of the fairway we like to stay in. We're not getting into anything specialized that could lead to issues. The quality of these lenders is very good and they blend nicely with our existing team. They bring us opportunities to have new relationships we would not have had otherwise, but we are not getting outside our skis by any stretch.

Brett Rabatin, Analyst, StoneX

That's helpful. And then just back on the cost of interest-bearing funds for Bank of Houston. I was looking at the regulatory data and saw that the cost was down like 12 basis points linked quarter to 3.46%. And that's obviously one of the key opportunities for the margin from here. Just competitively in Houston, what are you guys seeing on rate competition on deposits? And how much can you lower that over the coming quarters?

Cory Newsom, President

It's very competitive. Bank of Houston adds nicely to our Houston business; they do a good job with deposit relationships. We can manage liquidity in a way they couldn't before, and that gives us the ability to improve the cost of funds. We do see benefits coming with this and there's room to improve the cost of funding in that portion of the portfolio.

Brett Rabatin, Analyst, StoneX

Okay. And then maybe just lastly for me on mortgage banking. Obviously, a little noise with the servicing asset, but better than I would have expected given seasonality in 1Q and some higher interest rates. And I know mortgage is tough to predict, but maybe, Brent, any thoughts on what you see for mortgage from here? And just, it was down last year — can it get back to 2024 levels or better? Any thoughts on production and gain on sale margins?

Brent Bates, Chief Credit Officer

Mortgage is a good business and we like it. Right now it's the same song: we're doing well, we're not losing money, but it's not the robust environment you saw in the peak years. I think rates probably have to drop quite a bit to make a meaningful difference in volumes.

Cory Newsom, President

We're not setting the world on fire expecting huge mortgage volumes near term. What we're proud of is that we've kept the nucleus of the business together and it's not losing money. We're focused on hiring thoughtfully in this area and advancing the business. We want to offer mortgage services to our clients rather than referring them to competitors, and be able to ramp up production when rates improve. Over the last few years, we have not been losing money each quarter on mortgage, and we know how to run it efficiently and keep it in the black. Our team has done a very good job and we're proud to be in this business because it's an important service for our clients.

Operator, Operator

Our next question is from Stephen Scouten with Piper Sandler.

Stephen Scouten, Analyst, Piper Sandler

I wanted to just follow back around on the loan growth commentary. I think as you said, Cory, you guys had talked about the multifamily payoff last quarter. Just kind of wondering if the incremental payoff that you spoke of — the $30 million plus — was already anticipated in your guide? Or if not, what changed in terms of loan growth demand or dynamics overall?

Cory Newsom, President

I don't think there's anything unusual that wasn't in the normal course of business. A lot of these loans just run their lifecycle. From origination, many of these borrowers seek to stabilize and then obtain long-term financing. We have not been in a position to be the long-term holder of some of these multifamily loans in most situations.

Brent Bates, Chief Credit Officer

Stephen, we anticipated this. We talked about it in the fourth quarter. It was kind of baked in. We think there's probably maybe one more that is stabilized. These are credits looking for long-term fixed-rate financing that we are not going to provide. The credits are performing and this was the plan all along from origination, so I'd say it's fully expected.

Cory Newsom, President

When we enter a multifamily deal, we're usually a five-year player where the borrower then seeks long-term, nonrecourse financing from other sources. We fit that role well and aren't prepared to be the long-term holder on much of this product. We try to be ready to replace credits as they cycle off. Typically, these are recurring relationships, and we'll be careful with limits — we'd like to see one payoff and another replacement and keep the cycle going.

Brent Bates, Chief Credit Officer

To Cory's point, some of our unfunded growth has come from replacing balances for the same clients that achieved their long-term fixed-rate goals.

Stephen Scouten, Analyst, Piper Sandler

Understood. If I think about the reduction in loans on an end-of-period basis this quarter, that would seem to imply if you can still hit the guide, there's maybe $200 million of incremental organic growth for the rest of the year, a pretty significant pace. Is that a fair way to think about the rest of the year?

Cory Newsom, President

We're still very comfortable with the guidance we provided. We're not saying we'll hit the high end of mid- to high-single-digit growth, but low to mid-single-digit growth for the year is something we're comfortable with.

Stephen Scouten, Analyst, Piper Sandler

Helpful. And then maybe lastly, I know it's still early days here, but in terms of BOH and the extraction of synergies, how has that progressed? Do you feel good about realizing all those cost saves and any change to the timing of when you'd anticipate those coming through?

Cory Newsom, President

We're proud of how thoughtful and efficient we've been in this acquisition process. We closed, converted and integrated the key components inside of a quarter. Our team has been very focused from the project lead all the way through to execution to manage the conversion. We've also prioritized communication and onboarding to retain both talent and customer relationships. We were thorough in due diligence — we reviewed over 65% of the portfolio — and we liked what we saw. We don't want to lose the business we value. We've been deliberate to avoid the runoffs you sometimes see after transactions. I don't see that happening for us. We're intent on execution and retention, and we feel confident.

Curtis Griffith, Chairman and Chief Executive Officer

To be clear, the opportunity from BOH wasn't built into our projections for the year. But we've been convinced, working with the team there, that they have some real good opportunities. They were pretty constrained by liquidity; that's no longer a problem. That will be transformative to their ability to go back to their customers and pursue the loans they had wanted. That won't happen overnight; I don't expect huge increases in Q2. But I do think we'll hit some targets in Q3 and Q4 because the business and the team are there.

Cory Newsom, President

We like what BOH brings to us, and they like what we bring to them. The acquisition expands opportunities with some scale we can provide that had been more challenging for them. I feel really good about it, but we're not taking anything for granted and remain very focused.

Stephen Scouten, Analyst, Piper Sandler

What are you hearing from your customers in West Texas and throughout your footprint around the price of oil and the macro impacts from the conflict in the Middle East? If oil stays around $100 for a longer period, would that have a pronounced impact on those markets and potentially the loan growth targets?

Cory Newsom, President

Most customers in our footprint are not making long-term commitments based on oil staying at that level. They are taking advantage of higher prices where appropriate, but we aren't seeing widespread decisions predicated on elevated oil prices. From our underwriting perspective, we don't factor in higher oil prices.

Brent Bates, Chief Credit Officer

We do not factor in elevated oil prices in our underwriting. On the consumer side, we haven't seen any impact so far from the consumer perspective.

Cory Newsom, President

I don't think we have much of our customer base that's in a position to be hurt in any big fashion by higher oil prices right now.

Operator, Operator

Our next question is from Joe Yanchunis with Raymond James.

Joseph Yanchunis, Analyst, Raymond James

I want to ask about the NIM. It sounds like you're optimistic you can keep the NIM relatively steady. In your deck, you call it a pro forma NIM of 4.02%. Does that pro forma NIM back out the one-time loan interest recovery you received in the March quarter? I'm trying to understand the jumping-off point.

Steve Crockett, Chief Financial Officer and Treasurer

No, that pro forma NIM is just using our gross NIM; it doesn't back out the onetime loan interest recovery.

Joseph Yanchunis, Analyst, Raymond James

Shifting to loans, can you talk a little more about your energy portfolio and what the exposure is on a pro forma basis? What did loan demand look like in that vertical in the quarter?

Brent Bates, Chief Credit Officer

Most of our energy portfolio is really on the C&I servicing side — small business clients that we know well who have been in the business and survived prior cycles. We don't have much exposure to upstream lending in that segment.

Joseph Yanchunis, Analyst, Raymond James

Okay. So pretty steady on a pro forma basis. I think the last update you gave was around 4% exposure.

Brent Bates, Chief Credit Officer

Yes. We're still under 5% of the portfolio.

Joseph Yanchunis, Analyst, Raymond James

It looks like the major metro market loan balances are trending down. I assume that's largely payoffs. Can you talk about the pipeline in these markets, especially given your lender hiring?

Brent Bates, Chief Credit Officer

The pipeline, particularly on a combined basis, is strong. What you're seeing is the decline in multifamily over the last four quarters as loans move into the permanent market for long-term fixed rate financing. A lot of those loans were in our metro markets, and that's the effect you're seeing. Our pipelines are very strong on a combined basis.

Cory Newsom, President

Over the last year we identified a handful of credits we wanted to exit relationships with and we accomplished that. We don't have any significant credits we need to separate from today. We have stressed the portfolio in multiple ways and feel good about it, which is why we're confident in our loan growth guidance.

Joseph Yanchunis, Analyst, Raymond James

It sounds like the year-over-year decline in multifamily portfolio loans could reverse with some of the unfunded commitments. Where are you seeing the best risk-adjusted returns across your portfolios right now?

Brent Bates, Chief Credit Officer

Sorry, I couldn't hear you. What was your question?

Joseph Yanchunis, Analyst, Raymond James

Where are you seeing the best risk-adjusted returns from a lending perspective?

Steve Crockett, Chief Financial Officer and Treasurer

Secured lending.

Cory Newsom, President

If you look across the portfolio, owner-occupied lending offers solid risk-adjusted returns. We are not pursuing a lot of edgy businesses. We're focused on lending we know well and that fits our expertise.

Brent Bates, Chief Credit Officer

I agree with Cory. On the residential side we have pretty good risk-adjusted yields, and agricultural production has good yields on funded balances as it funds throughout the year.

Operator, Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Curtis Griffith for closing remarks.

Curtis Griffith, Chairman and Chief Executive Officer

Thank you, operator, and thanks to everyone joining us on today's call. We are pleased with our first quarter performance which reflects strong profitability, improving credit quality and continued discipline across our balance sheet. We've also successfully completed the Bank of Houston acquisition, a transaction that meaningfully enhances our presence in a highly attractive market and aligns well with our long-term strategy. We believe we've laid the foundation to continue building a larger, more capable community bank that includes investments in our people, technology and operating infrastructure that support both organic growth and disciplined M&A. While the near-term environment remains uncertain, we are confident in our strategy, our capital position and our ability to execute. Most importantly, we remain focused on creating long-term value for our shareholders while continuing to serve our customers and communities. I'd also like to take a moment to thank our employees across City Bank, including our newest team from Bank of Houston for their hard work, commitment and professionalism, particularly during a period of ongoing change. Their dedication to our customers and communities continues to be a key driver of our success. Thank you again for your time and interest in South Plains Financial.

Operator, Operator

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.