South Plains Financial, Inc. earnings

Management highlights

### Leadership Transition Plan - Long-planned leadership transition will take effect January 1, 2027: current Chairman and CEO Curtis Griffith will retire as CEO and move to a non-executive chairman role, while current President Cory Newsom will assume the CEO position. - Griffith's recent stock sale was part of a pre-planned long-term estate strategy, with a portion of proceeds funding existing family agricultural investments; Griffith and his family remain significant shareholders confident in the company's outlook. - The transition is expected to be seamless, as Newsom has led day-to-day operations and growth strategy for an extended period, including the successful BOH acquisition and integration. ### Completed Acquisition and Integration - The BOH acquisition closed in Q2 2026, and core system conversion was completed in May 2026, three months post-close; integration is now largely completed, ahead of initial planning timelines. - The acquired BOH loan portfolio is performing in line with management expectations, and the BOH team's culture aligns strongly with South Plains' existing relationship-focused community banking culture. - The company will continue optimizing the acquired BOH balance sheet by phasing out higher-cost funding sources to align with South Plains' historical cost of funds. ### Core Strategic Priorities - The company's primary current focus is disciplined organic loan growth across high-growth Texas markets, with strategic M&A as a secondary, highly disciplined priority. - Management maintains a conservative credit culture, and overall credit quality of the loan portfolio remains a core strength of the bank. - Growing non-interest income, improving operational efficiency, and delivering higher long-term returns are key ongoing priorities. - The company maintains a strong capital position to support growth, while returning consistent capital to shareholders via quarterly dividends and an active share buyback program. The board recently approved a 6% dividend increase to $0.18 per share, marking the 29th consecutive annual dividend increase. ### Market and Operating Conditions - Economic activity across South Plains' Texas markets remains healthy, with a strong loan pipeline and stronger-than-expected deposit performance in Q2 2026. - Management maintains a cautious approach to operations given the elevated interest rate environment and persistent inflationary pressures.

Guidance

- Full-year 2026 loan growth guidance is maintained at mid-single digits; while elevated loan paydowns will continue to act as a headwind to overall growth, healthy underlying demand is expected to support hitting the full-year target. - Management expects to see improved BOH cost of funds optimization results in Q3 2026, after full system integration was completed mid-Q2 2026, with the goal of maintaining overall NIM around the current 4% range. - Most BOH acquisition-related one-time expenses will be behind the company by Q3 2026, and expense savings from the transaction will begin to show up on the income statement starting in Q3 2026, pulled forward from original timelines due to the early conversion. - Cross-sell revenue synergies from the BOH acquisition (from treasury management and other existing South Plains products) are expected to begin producing visible non-interest income upticks starting in Q4 2026. - Moderate organic deposit growth is expected to continue in the second half of 2026, building on the higher-than-expected Q2 2026 base. - The company will maintain a target loan-to-deposit ratio below 85% long-term, with current levels sitting within the desired range and limited room for modest further increases.

Segment performance

South Plains Financial is a single-segment commercial bank, so consolidated results are presented below: - Total net interest income: $50.3 million, up $7.4 million from Q1 2026, driven primarily by $667 million in interest-earning assets acquired from Bank of Houston (BOH). - Tax equivalent net interest margin (NIM): 4% in Q2 2026, down 4 basis points from Q1 2026; excluding one-time non-accrual loan interest recovery, NIM has held steady over the last four quarters. - Non-interest income: $14.1 million in Q2 2026, up from $11.3 million in Q1 2026. It contributed 22% of total bank revenues, flat quarter-over-quarter. The increase came from $929,000 higher mortgage banking revenue and $894,000 higher bank card interchange revenue. - Non-interest expense: $39.9 million in Q2 2026, up $4.3 million from Q1 2026, including $2.7 million in core operating expenses from the BOH acquisition, $1.1 million in total acquisition-related expenses, and higher incentive compensation. - Diluted earnings per share: 96 cents in Q2 2026, up from 85 cents in Q1 2026. - Loans held for investment: $3.77 billion at quarter-end, up $677.3 million from Q1 2026, with $632 million from the BOH acquisition and $35 million in organic growth. Major Texas metropolitan markets (Dallas, Houston, El Paso) held $1.69 billion in loans, up $682 million quarter-over-quarter, including $50 million in organic growth. - Deposits: $4.64 billion at quarter-end, up $613 million from Q1 2026, with $596 million from BOH acquisition and $17 million in organic growth. Non-interest bearing deposits represented 24.8% of total deposits, down from 25.7% in Q1 2026 due to BOH's 16% acquisition-era non-interest bearing deposit ratio. - Allowance for credit losses: 1.41% of total loans at quarter-end, stable from Q1 2026. Provision for credit losses was $350,000 in the quarter. - Capital ratios: Tangible common equity to tangible assets was 10.47% at quarter-end, in line with Q1 2026. Tangible book value per share was $29.57, nearly flat from $29.65 in Q1 2026.

Risks & headwinds

- Elevated interest rates and lingering inflationary pressures create ongoing macroeconomic uncertainty, and the company is maintaining a cautious, conservative operational stance in response. - Elevated loan paydowns continue to act as a headwind to overall net loan growth, as borrowers sell assets and redeploy capital. - Industry-wide deposit competition creates upward pressure on the company's overall cost of funds, which could pressure net interest margin. - An uptick in classified and non-performing loans was recorded in Q2 2026, driven primarily by legacy BOH acquired loans; this uptick was expected, and the credit team is actively working to resolve these positions. - Any future M&A transaction must meet strict criteria related to culture fit, credit discipline, and shareholder value creation; failure to identify suitable targets could limit acquisition-driven growth.

Analyst Q&A

• Q: Analyst Brett Verbatten asks if most Bank of Houston (BOH) cost of funds optimization was done in Q2, what the outlook for margin is, and how much BOH cost management will impact overall NIM, especially amid rising deposit competition. /

  A: Management confirms very little optimization was completed in Q2, as system conversion finished mid-quarter, but most high-cost FHLB borrowings have already been paid off. They are working through remaining brokered CD maturities at a measured pace, and expect to see visible cost improvements in Q3 that will help hold overall NIM around the current 4% range. They note further optimization is limited by overall macro rate conditions and the need to maintain sufficient liquidity to fund expected loan growth. This matches the following:

• Q: Brett asks when expense savings from the BOH acquisition will show up, given conversion was completed in May, and if expenses will decline in Q3. /

  A: Management confirms that most acquisition-related one-time expenses will be behind the company starting in Q3, with Q2 expected to be the high water mark for acquisition-related costs. They add that the early conversion completed in May allowed the company to begin cutting expenses faster than originally planned, so expense savings will start to appear sooner than initially projected. This matches the following:

• Q: Analyst Joe Yancunas asks what the biggest drivers of earnings growth will be over the next 2-3 years, after BOH integration is complete. /

  A: Management confirms that organic growth across high-growth Texas markets is the primary driver, supported by targeted lender hiring to expand market reach. They note that the company remains open to strategic accretive M&A that meets strict criteria, but will not pursue growth for growth's sake. Improved operating leverage from scale growth and cost efficiencies from the BOH acquisition will also support long-term earnings expansion. This matches the following:

• Q: Analyst Woody Light asks what an ideal M&A target looks like for South Plains following the BOH acquisition. /

  A: Management states they will continue to focus exclusively on targets located in Texas, with a strong priority on cultural alignment matching South Plains' relationship-focused community banking model. They note the successful BOH integration has positioned the company as an attractive partner for potential sellers, and they will only pursue transactions that deliver clear strategic and financial value for shareholders. (1982 characters)