South Plains Financial Earnings Call Highlights Growth Pivot

South Plains Financial ((SPFI)) has held its Q1 earnings call. Read on for the main highlights of the call.

South Plains Financial’s latest earnings call struck a cautiously optimistic tone as management balanced solid operating trends and a transformative acquisition against near‑term integration costs and macroeconomic uncertainty. Executives emphasized healthy capital levels, rising tangible book value and resilient margins, even as earnings per share dipped on one‑time items and loan balances faced temporary pressure from expected payoffs.

Bank of Houston Deal Closes With Promising Economics

The merger with Bank of Houston officially closed on April 1 and is positioned as a key catalyst for future growth and earnings. Management projects the transaction will be about 11% accretive to earnings by 2027 with tangible book value recouped in under three years, based on a pro forma net interest margin of 4.02% and cost of deposits at 2.10% on roughly $632 million of loans and $596 million of deposits.

Deposits Expand and Liquidity Remains Ample

Deposits climbed by $154 million, or 4% quarter over quarter, to $4.03 billion as the bank generated broad‑based organic growth across retail, commercial and public fund customers. Management highlighted a strong liquidity profile and ongoing efforts to reduce reliance on higher‑cost and noncore funding sources, which should support earnings as the balance sheet is further optimized.

Net Interest Margin Holds Firm With Rising Loan Yields

South Plains maintained a solid net interest margin despite a choppy rate backdrop, with tax‑equivalent NIM edging up to 4.04% from 4.00% as average loan yields rose to 6.83% from 6.79%. Net interest income was stable at $43.0 million compared with the prior quarter, signaling that asset yields and funding costs remain reasonably balanced even as the rate cycle becomes more uncertain.

Credit Quality Improves as Provision Drops Sharply

Credit trends moved in the right direction as nonperforming loans fell by $4.8 million and net charge‑offs declined by $460,000, while the allowance for credit losses held steady at 1.44% of total loans. Reflecting this improvement, the provision for credit losses dropped sharply to $260,000 from $1.8 million, freeing up more of the earnings stream for capital build and shareholder returns.

Mortgage Business and Fee Income Provide Lift

Noninterest income increased to $11.3 million from $10.9 million, driven mainly by a $1.5 million jump in mortgage banking revenue and a $915,000 favorable valuation adjustment on mortgage servicing rights. Fee‑based businesses remained an important earnings pillar, with noninterest income contributing a steady 21% of total revenues and helping diversify away from pure spread income.

Capital Remains Strong as Tangible Book Rises

The bank’s capital position stayed comfortably above regulatory minimums with tangible common equity at 10.48% of tangible assets, only slightly lower than last quarter. Tangible book value per share increased to $29.65 from $29.05, a gain of $0.60 or 2.1%, supported by $11.8 million in net income after dividends and signaling continued intrinsic value growth for shareholders.

Dividend and Buyback Underscore Shareholder Focus

The board approved a quarterly dividend of $0.17 per share on April 16, marking the 28th consecutive payout and underscoring the company’s commitment to consistent cash returns. Management also kept its share repurchase program in place, providing additional flexibility to return capital opportunistically as conditions and valuation allow.

Pipeline Signals Growth Despite Lower Loan Balances

Loans held for investment decreased by $41 million to $3.1 billion, largely due to an anticipated $30 million early payoff of a multifamily credit and $24 million of seasonal agricultural paydowns. Even so, executives pointed to a robust loan pipeline and growing unfunded commitments, particularly in construction, plus ongoing lender hires to support organic growth toward the lower end of the mid‑ to high‑single‑digit target.

EPS Dips on One‑Off Costs and Investment Loss

Diluted earnings per share slipped to $0.85 from $0.90, a roughly 5.6% decline that management tied mainly to acquisition‑related expenses and an approximately $800,000 loss on a small business investment company holding. These drags were only partially offset by the sharply lower credit loss provision, suggesting underlying core performance is stronger than the headline EPS drop implies.

Loan Payoffs Create Temporary Headwinds

The contraction in loan balances was driven by expected paydowns rather than weakening demand, including the $30 million multifamily payoff and seasonal agriculture reductions. Management flagged another anticipated early payoff of roughly $34 million on a multifamily loan that will weigh on near‑term loan growth, though they framed these as timing issues rather than structural pressure on the franchise.

Operating Expenses Rise With Integration and Pay

Noninterest expense increased by $2.5 million to $35.5 million, up about 7.6% as personnel costs rose by $1.8 million due to pay adjustments and incentives. Professional services spending climbed by $542,000 and acquisition‑related costs, mostly those same services, added about $1.5 million, reflecting the near‑term cost of executing the Bank of Houston integration and supporting growth initiatives.

SBIC Loss Weighs on Otherwise Solid Noninterest Line

Results included an approximately $800,000 loss on an SBIC investment that partially offset strong mortgage‑related gains and contributed to the quarter’s lower earnings. Management framed this impact as noncore, suggesting the setback should not materially alter the broader earnings trajectory or the strategic value of maintaining select investment exposures.

Macro and Rate Uncertainty Pose External Risks

Executives warned that renewed inflation pressures, including from higher energy prices tied to geopolitical tensions, could keep the Federal Reserve from cutting rates as much or as quickly as once expected. That scenario could temper economic activity and loan demand while limiting the bank’s ability to drive further reductions in its cost of funds, reinforcing the need for disciplined pricing and credit selection.

Bank of Houston Integration and Repricing Opportunity

At quarter end, Bank of Houston’s standalone interest‑bearing deposits carried a relatively high 3.42% cost and included $15 million in borrowings, leaving room for repricing and funding optimization. Management sees scope over time to lower BOH’s deposit costs and reduce noncore funding, though they cautioned that the benefits will be incremental rather than dramatically lowering the consolidated deposit cost in the near term.

Guidance: Modest Loan Growth With Margin Discipline

Looking ahead, South Plains reiterated its goal of full‑year loan growth toward the lower end of its mid‑ to high‑single‑digit range, while also saying it is comfortable with low‑ to mid‑single‑digit expansion given the payoff headwinds. The bank aims to preserve its roughly 4% net interest margin and solid profitability metrics, supported by a $3.1 billion loan book, $4.03 billion in deposits, healthy construction commitments and expected 2027 earnings accretion of about 11% from the Bank of Houston merger.

South Plains Financial’s call painted a picture of a franchise absorbing integration and investment noise while its core engine remains intact, with stable margins, better credit trends and steady fee income. For investors, the key takeaway is a bank leaning into a strategic acquisition and organic growth pipeline, while navigating a tricky macro backdrop with a strong capital base and consistent shareholder returns.