SOUTH PLAINS FINANCIAL, INC. Q1 FY2025 earnings call

• Credit Quality: Non-performing assets to total assets ratio improved to 16 basis points from 58 basis points at year-end 2024, reflecting conservative credit management. - Loan Growth: Loans held for investment grew, with commercial owner occupied real estate and commercial goods and services loans contributing, offset by seasonal decrease in agricultural production loans. - Non-interest Income: Decrease in mortgage banking revenues due to fair value adjustment of mortgage servicing rights; selectively hiring for residential housing cycle. - Capital Position: Well capitalized with consolidated common equity tier 1 risk-based capital ratio 13.59% and tier 1 leverage ratio 12.04%. - Dividend and Stock Repurchase: $0.15 per share quarterly dividend (24th consecutive); $15 million stock repurchase program, $8.3 million spent in Q1.

Loans: Loans held for investment increased $20.8 million or 2.7% annualized to $3.08 billion in Q1. Major metropolitan loans (Dallas, Houston, El Paso) decreased by $18 million to $1.04 billion (33.8% of total loan portfolio). Permian loan growth was strong. Indirect auto loan portfolio grew $7 million to $243 million. Non-interest income: $10.6 million in Q1 vs $13.3 million in linked quarter, primarily due to decrease in mortgage banking revenues. Net interest income: $38.5 million, unchanged from linked quarter. Net interest margin 3.81% (up 6 basis points) due to 10 basis point decline in cost of deposits. Deposits: Increased by $171.6 million to $3.79 billion. Cost of deposits 219 basis points (down from 229 basis points).

• Loan Growth: Expect loan growth to trend to lower end of low- to mid-single-digit range for 2025. - NIM: Expect NIM to stabilize near current levels pending Federal Reserve rate changes. - Hiring: Actively hiring, selective in mortgage and other areas, budgeting for strategic hires to support growth.

• Economic Uncertainty: Tariffs could lead to national recession, with Texas potentially affected; however, state's pro-business environment may mitigate impact. - Loan Payoffs: Elevated loan payoffs, especially in real estate, could persist, but production and pipelines remain healthy. - Mortgage Servicing: Sensitivity to interest rate changes affecting fair value of mortgage servicing rights.

Q: Woody Lay asked about deposit costs and if there's room to continue moving them down, and on loan yield margin.

A: Steve Crockett said there's room on some accounts, Curtis Griffith agreed there's desire to continue building margin. On loan yield, Steve noted it depends on liquidity and loan funding, Cory Newsom said there's room for expansion.

Q: Joe Yanchunis asked about current hiring landscape and energy loan concentration.

A: Cory Newsom said they're actively hiring selectively, Curtis Griffith gave an example of hiring a mortgage professional; Cory Newsom stated energy loans are around 4% of the portfolio