SOUTH PLAINS FINANCIAL, INC. Q4 FY2025 earnings call

Curtis Griffith

• Delivered strong results in 2025 with 17.8% increase in diluted EPS, loan growth in line with guidance, 33 basis points NIM expansion, and over 14% tangible book value per share growth.
• Announced acquisition of Bank of Houston, which will complement existing Houston team, has similar culture, and expected to be 11% accretive to earnings in 2027 with less than 3 years tangible book value earn back.

Cory Newsom

• Loans held for investment increased by $91 million in Q4, with average loan balances down slightly due to late December growth. Focus on accelerating loan growth by selectively recruiting lenders.
• Bank of Houston has $772 million assets, $633 million loans, $629 million deposits, and complements growth strategy in high-growth Houston market.
• Indirect auto loan portfolio credit metrics improved, with 30-plus days past due loans at 19 basis points in Q4. Noninterest income flat in Q4.

Steven Crockett

• Diluted EPS $0.90 in Q4 vs $0.96 in linked quarter due to larger provision for credit losses. Net interest income $43 million in Q4, NIM 4%. Deposits held steady. Allowance for credit losses provision $1.8 million in Q4. Noninterest expense $33 million in Q4, unchanged. Tangible common equity to tangible assets 10.61% in Q4.

Loans held for investment increased by $91 million to $3.14 billion in the fourth quarter. Loan yield was 6.79% in Q4. Indirect auto loan portfolio totaled $241 million in Q4, with 94% originated in super prime or prime categories. Noninterest income was $10.9 million in Q4, relatively flat. Net interest income was $43 million in Q4, with NIM at 4%. Deposits held steady at $3.87 billion in Q4. Allowance for credit losses ratio was 1.44% at December 31, 2025.

Loan Growth

• Expect loan growth to accelerate to mid- to high single-digit in 2026.

Merger with Bank of Houston

• Expected to be 11% accretive to earnings in 2027 with less than 3 years tangible book value earn back.

Cost of Funds

• Expect modest decline in cost of funds in Q1 2026.

• Potential NIM compression due to loan growth and deposit cost pressures.
• Headwinds in Q1 2026 from expected payoffs in multifamily property portfolio.
• Competition in deposit and loan markets.

Q: Wanted to start on the NIM outlook. And I know if you adjust for some of those workout fees, NIM was relatively stable quarter-over-quarter. As you think about the strong growth you expect in 2026, do you think the NIM can remain relatively stable? Or is that higher growth going to come on at lower spreads and you could drive the NIM down a little bit?

A: Yes, I'll start Woody. This is Steve. I mean NIM outlook, I mean, you're exactly right. We do -- we want to have the loan growth and that should be helpful to us. We just know there's a lot of factors that go into it and I hate to say that we can expand it from where we're at. I mean there's still some loans repricing up from floors but there's some of the loans that were done fairly recently that -- or not recently, but in the last year or 2 that have come down with some of the Fed movement. So a lot of moving pieces. We're going to do our best to keep NIM in a similar place to where it is today. But I mean, just given how much loan growth we can put on and any additional deposits we may bring on, it will be a little tough, and there's just a lot of competition still out there and trying to match what or at least compete with what they're doing on the deposit side. Some of them are not coming down quite as fast on some of those funds. So all that being said, again, I don't know that expansion is where we'll be, trying to keep it where it is. But I mean, you could see a little bit of compression.

Q: And then how do you think about the deposit growth during the year? Because I know that you're expecting strong growth and then also with the pending BOH acquisition, they've got jumbo CDs as around 30% of deposits. So it would feel like you could flex your legacy markets a little bit on the deposit side. So how are you thinking about deposit growth throughout the year?

A: Woody, this is Curtis. And yes, you're hitting on the point there. I do think, and realize BOH has actually got pretty good NIM themselves right now. But we do believe that over time, we can reduce their deposit -- effectively the deposit cost of their deposit base as we kind of bring them into higher structure. That could kind of offset some of the other NIM pressures, but the big question is how fast can we do it?

Q: Wanted to talk a little bit about payoffs, which has been a topic that has slowed loan growth the past few quarters. It didn't seem like it did at all in 4Q. And so I was just curious if there were really no payoffs in the fourth quarter and then just the expectations, it sounds like you might have some in the first quarter. How are you guys thinking about net versus growth for '26 with this mid- to high single-digit growth expectations?

A: This is Brent. I'll kind of start by addressing your question on the payoffs. You're right, the fourth quarter was lighter on early payments than the prior 3 quarters. And that did help the net growth number, we do think there are a few more that timing is uncertain but we think they're going to see long-term fixed-rate financing. And so we factored that into our estimates for what we're hoping for on growth side. But it's hard to predict them all, but we've got a pretty good handle on the ones we think we'll ultimately see long-term fixed rate.

Q: I'm curious from an expense perspective, I think, Steve, I think I heard you say maybe expect expenses to be up a little bit, modestly higher in the first quarter from the fourth quarter. But how do you think about full year expense build, and what sort of additional new hire activities kind of built into those expectations?

A: Yes. I mean full year. Well, let's back up for '25, I mean noninterest expense, we did -- overall, kept it pretty flat right around the $33 million a quarter. I mean we've got just normal salary adjustments that will kick in. We still got a little bit of the hiring initiatives, Cory talked about as far as looking for some mortgage lenders but also loan producers on the commercial side as well. So really just as far as the commercial lender side, kind of back to what the initial outlook was for that, we're about halfway through what we had originally planned. So there's still several folks we got added in for that. We do have -- again, some of these technology projects, we think we'll be getting towards the end of some of that additional expense but we will see some of that some of the capitalization of a few of these projects, and I'll start kicking in as we get a little bit later on, maybe halfway through the year.