South Plains Financial, Inc. (SPFI) Earnings

Management highlights

• Delivered solid first quarter results with strong profitability, improved credit quality, and disciplined balance sheet management. • Strategy focused on expanding lending team in high-growth Texas markets and pursuing accretive M&A. • Completed Bank of Houston merger on April 1st, spent time on integration, expect core conversion in early May, and see opportunities to reduce BOH's cost of funds. • Cautious over near-term market backdrop due to inflationary pressures and Middle East conflict, but positive on long-term Texas economy. • Loans held for investment decreased due to early payoff of multifamily loan and seasonal net paydowns of agricultural loans, but unfunded loan commitment growth notable. • Non-interest income increased, with mortgage banking revenues contributing. • Net interest income in line with prior quarter, net interest margin 4.04%. • Deposits increased, cost of deposits decreased. • Ratio of allowance for credit losses stable. • Non-interest expense increased due to personnel and professional service expenses, and acquisition-related expenses. • Well capitalized with tangible common equity to tangible assets at 10.48%.

Guidance

• Expect loan growth guidance for full year, albeit towards lower end of mid to high single-digit range. • Board authorized 17-cent per share quarterly dividend, 28th consecutive dividend. • Continue to explore additional M&A opportunities but remain disciplined and patient. • Expect cost of funds to hold steady in second quarter absent further rate reductions by Fed. • Believe BOH merger will be 11% accretive to earnings in 2027 with tangible book value earned back of less than three years.

Segment performance

Loans held for investment decreased by $41 million to $3.1 billion in the first quarter. Loans held for investment in major metropolitan markets of Dallas, Houston, and El Paso declined by $23 million to $1 billion. Non-interest income was $11.3 billion in the first quarter, up from $10.9 million in the linked quarter. Net interest income was $43 million in the first quarter, in line with the fourth quarter's result. Net interest margin on a tax equivalent basis was 4.04% in the first quarter. Deposits increased by $154 million, or 4%, to $4.03 billion. Ratio of allowance for credit losses to total loans held for investment was 1.44% at the end of the first quarter. Non-interest expense increased $2.5 million to $35.5 million. For BOH, at or as of the first quarter ended March 31st, 2026, consolidated BOH had approximately $632 million of loans with a portfolio loan yield of 6.94% and $596 million of deposits, where non-interest bearing deposits represented 16% of that total. 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 non-interest income, and their non-interest 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%.

Risks & headwinds

• Near-term market backdrop uncertain due to inflationary pressures resurfacing from Middle East conflict, may limit Fed's ability to reduce rates and act as headwind to economic activity and loan growth. • Potential for deposit outflows in second quarter as customers make annual tax payments. • Uncertainty around future M&A opportunities meeting strict criteria. • Impact of energy price volatility on economy and loan growth in Texas markets.

Analyst Q&A

• Q: About balance sheet repositioning of BOH and EPS accretion outlook.

  A: Steve and Curtis discussed balance sheet repositioning like tightening liquidity, reducing federal home loan bank borrowings and broker deposits, and that it doesn't have a huge impact on EPS accretion outlook.

• Q: Realism of repricing higher-costing deposits and NIM expansion.

  A: Curtis said there are opportunities to improve deposit cost, but it's a marathon, not a sprint, and ultimate focus is not to diminish core NIM.

• Q: Core loan yields for standalone South Plains.

  A: Brent and Corey mentioned loan yields are holding well due to mix of loans and some fixed rate loans from earlier years.

• Q: Loan pipeline and specialized lines of business.

  A: Curtis said no new lenders are putting them into unfamiliar areas, and new lenders are good quality and blend with existing team.

• Q: Cost of funds for BOH and deposit rate competition.

  A: Curtis said there's room to improve deposit cost in BOH, it's competitive, and ultimate focus is on core NIM.

• Q: Mortgage banking outlook.

  A: Brent said mortgage is a good business they like, but needs rates to drop significantly for meaningful change, and they're focused on keeping the business profitable and efficient.

• Q: Loan growth commentary and multifamily payoff.

  A: Corey said multifamily payoff was anticipated, fully expected, and loans like multifamily run their cycle.

• Q: Synergies extraction from BOH acquisition.

  A: Curtis said they're content with the acquisition, it's transformative for BOH's ability to get loans, and they expect to hit targets in later quarters.

• Q: Energy portfolio exposure and loan demand.

  A: Corey said most energy portfolio is on CNI servicing side, small exposure to upstream lending, and pipeline is strong.

• Q: Best risk-adjusted returns across portfolios.

  A: Corey mentioned CD secured, owner-occupied stuff, ag, and production have good risk-adjusted yields.