South Plains Financial Earnings Call Highlights Growth Pivot

South Plains Financial ((SPFI)) has held its Q4 earnings call. Read on for the main highlights of the call.

South Plains Financial Balances Strong 2025 Gains With Measured Caution on Near-Term Pressures

South Plains Financial’s latest earnings call struck an overall upbeat tone, underscoring a year of solid execution despite a more challenging fourth quarter. Management highlighted full-year EPS growth of 17.8%, a 33-basis-point expansion in net interest margin (NIM), and more than 14% growth in tangible book value, alongside healthy deposit and loan growth and strong capital ratios. At the same time, they acknowledged modest quarterly earnings slippage, higher loan loss provisions, and some credit normalization in consumer autos, as well as near-term integration and consulting costs tied to a strategically important acquisition in Houston. The message was clear: long-term strategic and financial progress is outweighing manageable short-term headwinds.

Robust EPS Growth Underscores a Strong 2025

South Plains delivered a 17.8% increase in diluted earnings per share for full-year 2025, signaling a meaningful step-up in profitability year over year. This performance came even as fourth-quarter EPS slipped to $0.90 from $0.96 in the prior quarter, a roughly 6.3% decline mainly attributed to a higher provision for credit losses and some nonrecurring interest income in the previous period. Management framed the quarterly dip as timing-related rather than structural, stressing that the full-year earnings trend reflects a stronger, more profitable franchise with growing scale and improved efficiency.

Net Interest Margin Expanded Over the Year Despite Q4 Softness

Net interest margin expanded by 33 basis points over the course of the year, with a fourth-quarter NIM of 4.00% compared with 4.05% in the third quarter. The annual improvement highlights better pricing, mix, and balance sheet management, even though the quarter-to-quarter decline illustrates the growing impact of competition and a shifting rate environment. Management cautioned that some modest NIM compression is possible as loan yields moderate in step with expected Federal Reserve rate cuts, but emphasized that they aim to keep NIM around current levels.

Capital Strength and Tangible Book Value Growth

The company emphasized its capital strength and tangible book value growth as key pillars of its strategy. Tangible book value per share climbed more than 14% to $29.05, while tangible common equity to tangible assets reached 10.61%, up 36 basis points from the prior quarter. These metrics indicate a stronger capital base and capital efficiency, giving South Plains flexibility to fund organic growth, absorb integration costs from acquisitions, and continue returning capital to shareholders through its dividend, now paid for the 27th consecutive quarter.

Solid Deposit Growth and Stable Funding Profile

Funding trends remained a bright spot, with total deposits ending the quarter at $3.87 billion, essentially flat versus the prior quarter but up $253 million, or 7%, compared with year-end 2024. Noninterest-bearing deposits increased by $88 million over the full year and represented 26.4% of total deposits at year-end. The cost of deposits declined 9 basis points sequentially to 2.01%, and management expects a further modest decline in the cost of funds in the near term. Overall, the bank’s stable funding base and improving deposit costs support both earnings resilience and the capacity for future loan growth.

Loan Growth and Building Lending Momentum

Loans held for investment increased by $91 million in the fourth quarter to $3.14 billion, reflecting healthy demand and improved production. Management signaled that loan growth should accelerate to a mid- to high-single-digit rate in 2026, supported by recently hired lenders—about half of the roughly nine targeted hires have already been onboarded—and opportunities created by market dislocation in some regions. While there will be some bumps from expected paydowns in segments such as multifamily, the overall message was one of building momentum and a growing franchise capable of capturing share.

Strategic Houston Expansion via Accretive Bank of Houston Deal

A central strategic highlight was South Plains’ agreement to acquire BOH Holdings/Bank of Houston, a transaction management described as both scale-enhancing and strongly accretive. The deal is expected to be roughly 11% accretive to earnings in 2027 with a tangible book value earn-back period of less than three years. On completion, the combined bank will hold more than $1 billion in loans in the Houston region, significantly deepening South Plains’ presence in a key growth market. Management portrayed the transaction as a natural extension of its Texas-focused growth strategy, expanding its footprint while maintaining capital discipline.

High-Quality Consumer Auto Portfolio Despite Higher Charge-Offs

South Plains reiterated the overall high quality of its indirect auto portfolio, even as it acknowledged some incremental stress in the quarter. The portfolio totaled $241 million, with 94% of originations in the super-prime or prime categories and 87.7% still rated super-prime or prime at quarter end. Delinquencies remained low, with 30+ day past-due accounts at just 19 basis points. However, consumer auto net charge-offs increased to approximately $382,000 in the fourth quarter from $160,000 in the third, a jump of about 139%. Management framed this as normalization from unusually low levels rather than a deterioration in underwriting standards.

Noninterest Income Stability and Expense Discipline

Noninterest income came in at $10.9 million in the fourth quarter, essentially flat from the prior period and representing about 20% of total revenues. Mortgage banking was a modest drag, with revenues down $185,000 quarter over quarter due to seasonal volume declines, but other fee and service lines helped keep overall noninterest income steady. On the expense side, noninterest expense was controlled at $33 million, unchanged from the prior quarter, even after absorbing roughly $500,000 in acquisition-related items inside a $1.1 million increase in professional services. The ability to absorb deal-related costs while holding total expenses flat highlights disciplined cost management.

Quarterly Earnings Pressure From Provisions and NIM Drift

While the full-year narrative is clearly positive, the quarter’s softer spots were laid out candidly. Diluted EPS for the fourth quarter fell to $0.90 from $0.96, driven mainly by a larger provision for credit losses and the absence of one-time interest items that boosted the prior quarter. NIM edged down 5 basis points to 4.00%, reflecting competitive pressures and the early effects of a lower-rate outlook on asset yields. Management emphasized that these headwinds are manageable but signaled that investors should expect some volatility in quarterly results as the balance sheet adjusts to a changing rate and credit environment.

Higher Provision for Credit Losses Reflects Strong Late-Quarter Loan Growth

Credit costs rose in the quarter as the bank provisioned more aggressively for its expanding loan book. The provision for credit losses increased to $1.8 million in the fourth quarter from $0.5 million in the third, a jump of roughly 260%. Management attributed most of this increase to strong loan growth late in the quarter rather than to any broad-based deterioration in credit quality. The allowance for credit losses stood at 1.44% of loans, and management reiterated its commitment to disciplined underwriting and prudent reserving as the loan portfolio grows.

Loan Yield Moderation and Multifamily Payoff Headwinds

Yield on loans declined to 6.79% in the fourth quarter from 6.92% in the prior quarter, reflecting both the absence of certain one-time interest recoveries and the impact of lower market rates. Management expects loan yields to moderate further as interest rates decline and competition remains strong. In addition, the company flagged anticipated payoffs in its multifamily property portfolio in the first quarter of 2026 as a near-term headwind to loan growth, with some uncertainty around the timing and magnitude of these paydowns. These dynamics may modestly pressure both loan balances and yields in the coming quarters.

Acquisition and Integration Costs, Plus Mortgage Seasonal Drag

The call also addressed the unavoidable costs and headwinds that accompany growth investments and cyclical businesses. South Plains recognized about $500,000 of acquisition-related expenses in the fourth quarter, contributing to a $1.1 million increase in professional services. Management expects additional consulting and integration expenses tied to the Bank of Houston deal in the near term. Mortgage banking, meanwhile, continues to face a softer backdrop, with seasonal weakness depressing volumes and driving a $185,000 quarter-over-quarter revenue decline. While modest in size, these factors weigh on near-term profitability even as they support longer-term strategic positioning.

Guidance: Steady Core Performance and Accretive Growth Ahead

Looking ahead to 2026, management guided to mid- to high-single-digit loan growth, powered by ongoing lender recruitment and the pending Bank of Houston acquisition, which is expected to close in early second quarter 2026 and add roughly $772 million in assets, $633 million in loans, and $629 million in deposits based on recent figures. NIM is expected to stay near current levels around 4.00%, though modest compression is anticipated as loan yields normalize; new loan originations are currently being booked in the mid-6% range. Deposit costs, at 2.01% in the fourth quarter, are expected to decline slightly further in the near term, supporting net interest income, which stood at $43.0 million in the quarter. With an allowance for credit losses at 1.44% of loans, strong tangible capital metrics, and a deal projected to deliver roughly 11% EPS accretion by 2027 with a sub-three-year tangible book earn-back, South Plains signaled confidence in its ability to sustain earnings growth while managing credit and integration risks.

In closing, South Plains Financial’s earnings call painted the picture of a bank that has used 2025 to meaningfully improve profitability, strengthen its capital base, and position itself for further growth, particularly in the high-potential Houston market. While quarterly earnings were pressured by higher provisions, some NIM drift, and rising but still manageable consumer auto charge-offs, management framed these as near-term frictions against a backdrop of solid organic growth and a clearly accretive M&A strategy. For investors, the key takeaways are a franchise delivering strong full-year numbers, maintaining disciplined risk management, and leaning into strategic expansion—while openly acknowledging the short-term headwinds that may make the path forward less than perfectly smooth.