SOUTH PLAINS FINANCIAL, INC. Q2 FY2025 earnings call

• Extended sympathies to regions impacted by floods. - Achieved margin expansion due to cost of funds decline; solid credit quality with proactive loan portfolio management. - Modest loan growth, healthy loan pipeline, and capital building. - Organic growth strategy focuses on lending expansion; community-based deposits provide stable funding. - M&A strategy with interest in accretive acquisitions, recent acquisition of West Texas State Bank; selective with strict criteria. - Loan payoffs impacting growth, but optimistic about future growth with new lenders in Dallas market.

Loans: Held for investment increased by $23.1 million to $3.1 billion in Q2; major metro loans (Dallas, Houston, El Paso) decreased by $26 million to $1.01 billion; indirect auto loan portfolio modestly decreased to $241 million. Deposits: Decreased by $53.6 million to $3.74 billion; noninterest-bearing deposits increased $32.3 million. Net Interest Income: $42.5 million in Q2 vs $38.5 million prior quarter; net interest margin (tax equivalent) 4.07% in Q2 vs 3.81% prior. Allowance for Credit Losses: 1.45% of total loans held for investment at Q2 end. Noninterest Expense: $33.5 million in Q2 vs $33.0 million prior quarter.

• Expect loan growth to be flat to up low single digits in Q3. - Anticipate loan growth to reaccelerate with economic growth and new lenders. - M&A interest remains, but selective with strict criteria for acquisitions, looking for banks with right culture and asset liability profile.

• Potential economic headwinds from ongoing tariff negotiations. - Heightened loan payoffs continuing to impact loan growth. - Buyer expectations as an impediment to M&A, with sellers needing to be more realistic on valuations.

Q: Stephen Scouten on loan pipeline and hiring vs M&A.

A: Brent and Cory discuss loan pipeline trends, hiring efforts, and M&A strategy, stating hiring will continue even with potential M&A.

Q: Brett Rabatin on margin and M&A.

A: Steve discusses margin outlook with CD book repricing down and focus on NIM expansion; Curtis talks about M&A impediments being buyer expectations and asset range for acquisitions.

Q: Woody Lay on loan yields and noninterest-bearing deposits.

A: Cory discusses loan yields with new production rates and noninterest-bearing deposit growth tied to treasury management solutions.

Q: Joe Yanchunis on hiring strategy and noninterest-bearing deposits.

A: Cory and Curtis talk about hiring strategy impact on expenses and noninterest-bearing deposit growth from relationship-based efforts and incentivized lenders.