South Plains Financial, Inc. (SPFI) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows strong financial performance with increased deposits, reduced classified loans, and improved tangible book value. The Q&A indicates positive growth in the lending team and a strategic focus on expansion. Despite some concerns about credit score migration, the overall sentiment is positive due to stable net interest margins and a strong capital position. The company's proactive hiring strategy and strategic M&A criteria further support a positive outlook. Given these factors, a positive stock price movement is likely over the next two weeks.
Key Financial Performance
Loans held for investment Decreased by $45.5 million to $3.05 billion in the third quarter compared to the linked quarter. The decline was primarily due to a decrease of $46.5 million in multifamily property loans, mainly from the payoff of 2 loans totaling $39.6 million.
Yield on loans 6.92% in the third quarter compared to 6.99% in the linked quarter. Excluding one-time gains, the yield was 6.84% in the third quarter, up from 6.76% in the second quarter, representing an increase of 8 basis points.
Indirect auto loan portfolio Totaled $239 million at the end of the third quarter, relatively unchanged from $241 million in the linked quarter. Declined by $57 million since the third quarter of 2023 when the portfolio was $296 million, due to tightened credit standards and competitors becoming more aggressive.
Net charge-offs for consumer autos Approximately $160,000 for the quarter compared to $350,000 in the linked quarter, showing improvement.
Noninterest income $11.2 million in the third quarter compared to $12.2 million in the linked quarter. The decrease was primarily due to a $1 million decline in mortgage banking revenues, mainly from a $769,000 quarter-over-quarter decline in the fair value adjustment of the mortgage servicing rights asset.
Diluted earnings per share $0.96 in the third quarter compared to $0.86 in the linked quarter. The increase was primarily due to a reduction in provision for credit losses and an increase in net interest income, partially offset by a decrease in MSR fair value adjustment.
Net interest income $43 million in the third quarter compared to $42.5 million in the linked quarter. Excluding one-time items, the net interest margin increased by 9 basis points to 3.99%.
Deposits Increased by $142.2 million to $3.88 billion at the end of the third quarter due to organic growth in both retail and commercial deposits. Noninterest-bearing deposits increased by $50.7 million, and the cost of deposits declined by 4 basis points to 210 basis points.
Classified loans Decreased by $21.1 million during the quarter, including the full collection of a $32 million multifamily property loan.
Provision for credit losses $500,000 in the third quarter compared to $2.5 million in the linked quarter. The decrease was largely attributable to a decrease in specific reserves, decreased loan balances, and improved credit quality.
Noninterest expense $33 million in the third quarter compared to $33.5 million in the linked quarter. The $519,000 decrease was largely due to a reduction in professional service expenses related to consulting on technology projects.
Tangible book value per share Increased to $28.14 as of September 30, 2025, compared to $26.70 as of June 30, 2025. The increase was driven by $13.7 million of net income after dividends paid and an increase in accumulated other comprehensive income of $9.1 million.
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Operating Highlights
Expansion of lending team: The company plans to increase its lending team by up to 20% to accelerate loan growth. Lenders have already been added in Houston and Midland, with further recruitment ongoing in metropolitan markets like Dallas, Houston, and El Paso.
Market dislocation opportunities: The company is capitalizing on dislocation from recent acquisitions in Texas to expand its platform.
Loan portfolio management: Loans held for investment decreased by $45.5 million, primarily due to payoffs in multifamily property loans. The company expects loan paydowns to moderate in 2026.
Indirect auto loan portfolio: The portfolio totaled $239 million, with tightened credit standards and a focus on maintaining credit quality. 86% of borrowers have super prime or prime credit ratings.
Deposit growth: Deposits increased by $142.2 million to $3.88 billion, driven by organic growth in retail and commercial deposits.
Cost management: Noninterest expense decreased by $519,000 due to reduced professional service expenses related to technology projects.
M&A opportunities: The company is exploring acquisitions of banks in core markets that align with its conservative culture and criteria. Discussions with potential targets are ongoing.
Capital management: The company redeemed $50 million in subordinated debt and maintains a strong capital position with a common equity Tier 1 risk-based capital ratio of 14.41%.
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Risk or Challenges
Loan Paydowns and Payoffs: Higher-than-normal loan paydowns and payoffs have been a headwind to loan growth, impacting the bank's ability to expand its loan portfolio.
Interest Rate Environment: Loan yields are expected to moderate due to the FOMC's interest rate reduction, which could impact net interest margins and overall profitability.
Mortgage Banking Revenues: Persistently high mortgage rates and low housing supply have led to flat mortgage banking revenues, limiting growth in this segment.
Indirect Auto Loan Portfolio: Competitors are becoming more aggressive in the higher end of the credit spectrum, and the bank has tightened loan-to-value requirements to manage credit quality, which could limit growth in this portfolio.
Economic Uncertainty: While cautiously optimistic about economic growth in Texas markets, potential economic challenges could impact loan growth and overall financial performance.
Mergers and Acquisitions (M&A) Risks: The bank is exploring M&A opportunities but faces risks in identifying suitable targets that align with its conservative nature and culture, which could delay growth plans.
Noninterest Income: Noninterest income has been relatively flat, with a decline in mortgage banking revenues being a contributing factor, which could limit diversification of revenue streams.
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Guidance & Outlook
Loan Growth: The company expects an acceleration in loan growth next year through increasing its lending team by up to 20%. Additionally, loan growth is projected to gradually accelerate to a mid- to high single-digit rate through 2026, supported by new hires and diminishing loan payoffs.
Mergers and Acquisitions (M&A): The company is exploring further acquisitions in its core markets, focusing on banks that align with its conservative nature and culture. However, M&A will only be pursued if it makes sense for the bank and its shareholders.
Capital Position: The company is well-capitalized, with a consolidated common equity Tier 1 risk-based capital ratio of 14.41% and a Tier 1 leverage ratio of 12.37% as of September 30, 2025. This strong capital position supports both growth initiatives and shareholder returns.
Economic Activity and Market Conditions: The company remains cautiously optimistic about economic growth across its Texas markets, which is expected to provide a tailwind to growth. It also anticipates a resilient economic environment to support its lending activities.
Deposit Growth and Cost Management: Deposits increased by $142.2 million in the third quarter, with a focus on organic growth in retail and commercial deposits. The company expects to continue managing deposit costs effectively as market rates decline.
Mortgage Banking Revenues: The company believes it is well-positioned for an eventual upturn in mortgage banking volumes as market interest rates are expected to decline further.
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Shareholder Return Plan
Quarterly Dividend: The Board of Directors authorized a $0.16 per share quarterly dividend, marking the 26th consecutive dividend.
Share Buyback Program: The company is keeping a share buyback program in place as part of its strategy to return income to shareholders.
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Key Q&A
Q:How much of the planned 20% growth in the lending team is coming from true lenders versus support staff?
A:The growth is entirely from production (true lenders) and does not include support staff. The base number of lenders is approximately 40, and they have already achieved over 10% of the planned 20% growth this year.
Q:Which markets are contributing to the growth in the lending team?
A:The growth is coming from the Permian, Houston, and Dallas areas.
Q:Can you explain the increase in subprime and deep subprime indirect loans in the portfolio?
A:The increase is due to updated borrower credit score data rather than origination data. The numbers reflect changes in borrower credit scores over time, not at the origination date.
Q:What was the incremental cost associated with redeeming the $50 million of sub debt?
A:There was no expense incurred in the P&L for redeeming the sub debt as it was redeemed at the end of the call period.
Q:How is the company leveraging past hiring initiatives for the current hiring plan?
A:The company is using its rigorous hiring process to ensure a credit culture fit and aims for new hires to break even within six months. Unlike in 2021, the current hiring initiative is not focused on replacing retirees but on expanding the team to seize market opportunities.
Q:What is the expected expense growth rate due to the additional hires?
A:Noninterest expense is expected to modestly increase as the hires are spread out over time. A significant part of the compensation will be in incentive compensation packages, which will be paid out well into next year.
Q:What makes a good M&A target for South Plains?
A:A good M&A target must be a culture fit, have successful operations, and align with South Plains' long-term goals. The company focuses on banks with customer loyalty and employees committed for the long haul. The financial numbers must also work for the deal to proceed.
Q:What is the company's approach to hiring new lenders?
A:The company hires lenders based on their abilities and past success, not on the size of their existing book of business. New hires typically carry portfolios ranging from $75 million to $400 million and are expected to break even within six months.
Q:What is the company's outlook on net interest margin (NIM) for the next quarter?
A:The NIM may see a slight decline or increase by a basis point or two due to various factors, including Fed rate movements, deposit repricing, and loans coming off low rates. The range is expected to remain stable.
Q:Does the company have concerns about the migration of credit scores in the indirect auto portfolio?
A:While there has been some downward migration in credit scores, delinquencies and credit issues have not risen. The company actively monitors this and remains focused on higher-end loans in the portfolio.
Q:What is the company's stance on payoffs in the commercial real estate (CRE) book?
A:The company expects some scheduled payoffs in the first and second quarters of next year. They are not lowering credit standards to retain loans and are replacing below-market-rate loans with new business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numbers or details when asked about the performance of recently hired lenders and their contributions so far. They also used vague language when discussing the potential impact of credit score migration in the indirect auto portfolio, stating that they actively monitor it but not providing concrete data or examples.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bank acquisition
Conference reminder
Dallas MSA
FOMC basis
Financial statement
Houston Midland
MSA loan
Midland success
Paso Slide
Plains dislocation
Plains liquidity
President bank
Slide decrease
Slide loan
Texas opportunity
Tier
acceleration lending
acceleration loan
acquisition Texas
acquisition West
acquisition discussion
bank quality
borrower
call
competitor
culture
day loan
harbor statement
headwind loan
lender bank
lending platform
loan basis
loan level
metro
paydowns headwind
platform lender
point basis
point interest
rate loan
success lender
volume
yield basis
SPFI Transcript
South Plains Financial, Inc. (SPFI) Q1 2026 Earnings Call Transcript
Unknown4-28
The earnings call presents a mixed picture: positive elements include stable credit losses, improved tangible book value, and strategic acquisition of Bank of Houston. However, increased noninterest expenses and competitive deposit rates in Houston pose challenges. The Q&A reveals management's cautious approach to NIM and deposit cost management, with some unclear responses. While the merger is promising, the overall sentiment is tempered by uncertainties in loan growth and energy exposure. The absence of strong catalysts or significant negative factors suggests a neutral outlook, with limited short-term stock price movement.
South Plains Financial, Inc. (SPFI) Q4 2025 Earnings Call Transcript
Unknown1-26
The earnings call summary presents a stable financial performance with steady net interest income and deposits, and a strong capital position. However, the Q&A reveals uncertainties in deposit cost reduction and revenue synergies from the BOH acquisition. The company's cautious approach to M&A and lack of specific guidance on technology investments further contribute to a neutral sentiment. While there is potential for loan growth and cross-selling, the lack of strong positive catalysts or new partnerships tempers expectations for significant stock price movement.
South Plains Financial, Inc. (SPFI) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call shows strong financial performance with increased deposits, reduced classified loans, and improved tangible book value. The Q&A indicates positive growth in the lending team and a strategic focus on expansion. Despite some concerns about credit score migration, the overall sentiment is positive due to stable net interest margins and a strong capital position. The company's proactive hiring strategy and strategic M&A criteria further support a positive outlook. Given these factors, a positive stock price movement is likely over the next two weeks.
South Plains Financial, Inc. (SPFI) Q2 2025 Earnings Call Transcript
Unknown7-16
The earnings call presents a mixed picture: while there are positives like increased net interest income, tangible book value, and noninterest-bearing deposits, there are concerns about deposit outflows, increased credit losses, and a conservative loan growth outlook. The Q&A highlights management's cautious optimism but also reveals challenges in loan growth and M&A. The sentiment is tempered by uncertainties in deposit costs and loan yields. Overall, the positives and negatives balance out, resulting in a neutral sentiment.
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