South Plains Financial Inc (SPFI) 2026 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc's, third-quarter 2026 earnings conference call.

(Operator Instructions) And, as a reminder, this conference call is being recorded.

Additionally, the company has issued their earnings press release and earnings slide-deck presentation, which are available on the SEC's website, as well as on the News & Events section of their website, spfi.bank.

Please refer to slide 2 of the presentation for management's Safe Harbor statements regarding forward-looking statements. All comments expressed or implied made during today's call are made only as of today's date and are subject to the Safe Harbor statements in the presentation and earnings release.

In addition, please refer to the slide 2 of the presentation for the company's disclaimer regarding the use of non-GAAP financial measures. A reconciliation of these measures to the most comparable GAAP financial measures can be found in our presentation and earnings release.

On today's call, we have Curtis Griffith, Chairman and CEO; Cory Newsom, President; Steve Crockett, Chief Financial Officer and Treasurer; Brent Bates, City Bank's Chief Credit Officer; and Tyler Haynes, City Bank's Chief Banking Officer.

I would now like to turn the call over to Mr. Curtis Griffith. Please go ahead.

Thank you, operator, and good afternoon, everyone. Before I turn the call over to Cory, I want to take a moment to thank our employees, our customers, and our shareholders for their support over the years.

As I prepare to retire as Chief Executive Officer at the end of this year, I've been reflecting on what we have built together and I could not be prouder of what City Bank and South Plains have become.

Over the years, we've built a strong relationship-driven franchise, a unique culture, and a team that has always remained committed to serving our customers and communities.

What gives me the greatest confidence about the future is the people we have in place today. The leadership transition that will be completed at year end has been planned for many years. And Cory and Steve, along with the rest of our experienced management team, have been leading the day-to-day operations for quite some time.

We have worked hard to build a deep and experienced leadership team, while also developing the next generation of talent across the company, including Tyler Haynes, who joins us on the call today; and many others who represent the future of South Plains.

While my role will change at year end, I will remain involved as Chairman of both South Plains and Ciy Bank. My focus will shift toward helping guide the long-term strategy of the company and the bank, alongside our Boards of Directors and management team.

I am confident that South Plains is in an excellent position, with a strong balance sheet, attractive growth opportunities, and a talented leadership team that's well prepared to continue building on our success.

The strong results we delivered during the third quarter, including near-record earnings per share, stable profitability, and solid organic loan growth, reinforce that confidence and demonstrate the continued success of the strategy we have been executing.

With that, let me turn the call over to Cory.

Thank you, Curtis, and thank you for your leadership, support, and guidance over the years. It's been a privilege to work alongside you for many years.

The culture, customer relationships, and reputation that we have built over the past several decades have created a tremendous foundation for the future.

While I'm honored to step into the CEO role at your end, I'm equally pleased that Curtis will remain Chairman. I look forward to his support as Chairman, as we execute our strategy of expanding our lending platform across our high-growth Texas markets, while pursuing disciplined acquisition opportunities.

Most importantly, the bank is in an excellent position today. And I'm excited to build upon the strong foundation that our team has created.

Turning to slide 4, I'm very pleased with our third-quarter results:

Net income increased to $20.8 million compared to $19 million in the second quarter. We also delivered diluted earnings per share of $1.06, as compared to $0.96 in the linked-quarter.

Return on average assets improved to 1.53%, while our efficiency ratio improved to 58.1%. Importantly, we generated these results while maintaining our disciplined approach to credit and risk management, as we continue to build the long-term earning power of the bank.

Turning to slide 6, loans held for investment increased by approximately $60 million, as compared to the linked-quarter, representing 6.3% annualized organic loan growth and ended the period at $3.83 billion.

The increase was driven by healthy loan production across our markets and was achieved despite the early pay-off of a $25 million loan that was fully secured by the borrower's deposit account, as well as an anticipated pay-off of a large relationship during the quarter.

The fact that we were able to deliver this level of growth despite these pay-offs reflects the strength of our underlying loan pipeline and customer demand.

As we've discussed throughout the year, we expected loan production to accelerate, as we move through 2026. And we believe the second-half is developing largely as anticipated.

While loan pay-offs continue to occur in the normal course of business, we believe our loan pipeline remains healthy and customer demand remains strong across both our metropolitan and community markets.

Based on current production trends and pipeline activity, we remain confident in delivering our full-year loan growth guidance in the mid-single digits.

Our loan yield was 6.75% during the quarter compared to 6.81% in the second quarter. Although the market-interest-rate environment remains volatile, we remain focused on balancing prudent growth with profitability, as we continue to expand relationships throughout our footprint.

Turning to slide 7, our major metropolitan markets remain an important growth driver for the bank. Loans in Dallas, Houston, and El Paso increased by approximately $23 million during the quarter to $1.71 billion and represented 44.6% of our total loan portfolio, as of September 30.

We continue to see attractive opportunities across these markets and remain encouraged for the activity levels, loan pipelines, and long-term growth prospects in each of these regions.

In Houston, specifically, we continue to be pleased with our progress, following the Bank of Houston acquisition. It's important to note that much of our team's focus has been on the integration, the system-conversion process, and employee training since we closed on April 1.

With those efforts now largely behind us, our Houston bankers are now able to focus more fully on business development and growth opportunities available in one of the most attractive banking markets in Texas.

We are also beginning to see the benefits of combining the two organizations, including enhanced lending capacity, additional liquidity, and the ability to pursue opportunities that may have been previously constrained.

More broadly, expanding our lending platform remains one of our top priorities. We continue to benefit from the disruption across the Texas banking industry, particularly as competitor mergers create opportunities to recruit experienced bankers and deepen customer relationships.

During the quarter, we added experienced bankers in Lubbock and in College Station. And we remain active in identifying talent that fits our culture and relationship-based approach to banking.

Given the ongoing consolidation across our markets, we believe there will continue to be opportunities to grow our team and drive future organic-loan growth.

As we continue to execute our organic-growth initiatives, M&A remains an important component of our long-term strategy. We continue to evaluate opportunities that have the potential to strengthen our franchise, expand our presence in attractive markets, and create long-term shareholder value.

Importantly, we will remain disciplined in our approach, if any potential transaction must align with our culture, community-banking model, credit standards, and financial objectives.

We're not interested in growth for growth's sake and any acquisition must create long-term value for shareholders. Given our strong capital position and the scale of our platform, we believe we are well positioned to pursue the right opportunities, should one emerge.

Skipping to slides 11 and 12, non-interest income totaled $13.8 million during the quarter compared to $14.1 million in the second quarter. The modest decline was primarily driven by lower bank-card services and interchange revenue, as the prior quarter benefited from incentive income that did not repeat in the third quarter.

Mortgage banking revenues totaled $4.9 million and benefited from a $1.6 million increase in the value of our mortgage-servicing rights asset, as market interest rates moved higher during the period.

While higher interest rates have created additional pressure on mortgage-origination activity across the industry, our mortgage operation has not been a drag on earnings during this challenging environment and should be positioned to benefit, when the activity eventually improves.

Outside of Mortgage banking, our diversified fee-income businesses continue to perform well and remain an important contributor to the bank's overall profitability. For the third quarter, non-interest income was 21% of bank revenues, essentially flat with the linked-quarter.

Now, I'd like to turn the call to Steve to discuss our third-quarter results in more detail. Steve?

Thanks, Cory.

For the third quarter, diluted earnings per share was $1.06 compared to $0.96 from the linked-quarter. The increase was driven by strong organic-loan growth, prior to the two large pay-offs; and stable margin performance; and the reduction of acquisition-related expenses in connection with our BOH acquisition.

Importantly, these results were achieved while absorbing approximately $875,000 of accrued expense associated with Curtis' retirement, which, combined with what was recognized during the second quarter, are now largely behind us.

This expense was mostly offset by the benefit of higher mortgage-servicing rights valuation adjustment, as interest rates moved higher during the quarter.

Turning to slide 14, net interest income was $51.5 million for the third quarter, up $1.1 million from the linked-quarter. The increase was primarily driven by a $53 million increase in average interest-earning assets during the quarter.

Our net interest margin on a tax equivalent basis remained stable at 4% during the third quarter. As we've noted previously, reported margins in certain prior periods benefited from problem-loan-interest recoveries. Excluding those items, we have maintained a stable margin profile, despite continued volatility in interest rates.

Looking ahead, our focus remains on maintaining our NIM at current levels, while growing our balance sheet, as we execute our organic-loan growth strategy, which we believe will drive earnings growth and improving returns over time.

As outlined on slide 15, deposits increased by $20 million from the linked-quarter to $4.66 billion. As Cory noted, we had a $25 million [CD-secured] loan that paid off during the third quarter by liquidating the collateral. This was not unexpected and will be additive to our net interest margin.

During the quarter, we also allowed certain higher cost and non-core funding sources to leave the bank, while continuing to generate growth in core customer deposits. This reflects our efforts to optimize our funding base, following the Bank of Houston acquisition.

Non-interest-bearing deposits increased to $1.18 billion and represented 25.3% of total deposits at quarter end, as compared to 24.8% at June 30t.

Our cost of deposits improved slightly during the quarter, declining 1 basis points to 207 basis points, as compared to the linked-quarter.

Looking ahead, we continue to see opportunities to manage select higher-cost-funding sources, which remains an important lever in maintaining our profitability at current levels.

Turning to slide 17, our ratio of allowance for credit losses to total loans was 1.38% at September 30, down from 1.41% in the prior quarter.

During the quarter, we recorded a provision for credit losses for loans of $1 million, primarily driven by organic-loan growth and net charge-off activity.

We continue to believe our reserve levels appropriately reflect the risk profile of the portfolio and position us well for a range of economic conditions.

We did experience a modest increase in non-performing loans during the quarter, primarily related to Bank of Houston-acquired loans.

While non-performing loans increased to 40 basis points of total loans, overall levels remain low; and, subsequent to quarter end, we have already seen the largest of these credits return to performing status.

As we've discussed previously, we anticipated some migration within the acquired portfolio. And our credit team continues to actively work these loans to help ensure a proper resolution.

Next, on slide 19, non-interest expense decreased by $1.8 million to $38.1 million in the third quarter, as compared to the linked-quarter. The decrease was primarily driven by lower personnel costs, a reduction in mortgage commissions, and the absence of acquisition-related expenses associated with the Bank of Houston transaction, which were largely behind us, following the second quarter.

Taken together, our efficiency ratio improved at 58.1% in the third quarter from 61.6% in the linked-quarter, reflecting both continued revenue growth and our ongoing focus on expense discipline.

Looking ahead, we remain focused on investing in growth opportunities, while maintaining strong operating leverage across the organization.

Moving to slide 21, we remain well capitalized, with tangible common equity to tangible assets of 10.32% and a common equity Tier 1 ratio of 14.2% at quarter end.

Our strong capital position provides flexibility to support both our organic-growth initiatives and disciplined acquisition strategy.

Our tangible book value per share was $29.23, as of September 30, 2026, compared to $29.60 at June 30. The modest decline was primarily driven by a decrease in accumulated other comprehensive income of $25.5 million, given the large rise in interest rates during the quarter, partially offset by $17.4 million of net income after dividends paid in the third quarter.

We remain focused on returning capital to shareholders, having announced today that we will pay our 30th consecutive quarterly dividend during the fourth quarter.

We continue to view capital allocation through the lens of balancing growth, profitability, and shareholder returns.

This concludes our prepared remarks. I will now turn the call back to the operator to open the line for any questions. Operator?

Thank you. We'll now be conducting a question-and-answer session.

(Operator Instructions)

Brett Rabatin, StoneX Group.

Hey, guys. Good afternoon. It was good to see the margin stability and the management of the cost of funds.

I was just curious, wanted to talk -- I know there's a lot of variables that go into it but just your thoughts on the margin from here and if there's additional hot money that you might be letting go; and then, just any thoughts on where you're seeing new loan production, relative to the current portfolio yield?

Yeah. Brett, this is Steve. I'll start. I'll let Brent or somebody else talk about new loan rates.

But we were very glad to see margin where it's at. We did have loan growth in the quarter, which definitely helped with the excess liquidity we've been carrying that helps boost up.

The net interest margin, loan yields were down just a little bit but still fairly close to where we were last quarter on the deposit side. We saw a little bit -- we tried to move a few things but, overall, the cost was down just slightly.

But we continue to try to manage overall deposits -- some of the non-core stuff -- and push out some of that that we don't need to just really want to try to keep the NIM in a fairly close range of where we're at. It can always go up a couple of basis points or down a couple of basis points.

Somebody else want to talk about new loan rates?

Yeah. This is Brent.

On new production, we're seeing those rates come up a little bit there toward the end of the quarter. But, typically, seeing [upper-6s] on new loan-origination volume.

And I think, as far as continuing to maintain -- this is Cory, Brett -- we've got a lot of our internal challenges that we were facing with conversions and new loan-operating system. A lot of that stuff is getting put to the wayside and so there's really been a focus back on trying to push things through the pipeline and get it done.

And pipeline is still really good so I think that's going to continue to enhance that a bit.

Okay, That's helpful. And then, I wanted to talk about expenses and the hires. I didn't hear the number on the number of hires for Lubbock, College Station. But a lot of -- I don't call it noise but a lot of things going into the expense run right from here, maybe. So the [850] is probably coming off from Curtis's retirement.

But any thoughts on -- I know there's $4.6 million of expense savings from Bank of Houston -- the pace of the expense base from here?

And then, a lot of banks have been telling me that there's been numerous opportunities to hire from two particular banks and just wanted to see if that lending pipe -- that higher pipeline might still be running pretty strong.

(multiple speakers) -- let me take off and talk about the new hires.

So we picked up a couple of new hires during this quarter. We're staying very, very focused. This is something that's very, very important to us. So we're pretty thoughtful about the way we go about bringing new talent on. And we're trying to make sure that they're good fits in the process of doing this.

I think we're as focused as we've ever been on continuing to hire talent. And opportunities exist. And we're in the midst of it, as we speak. So I think that part is going to keep going.

Steve (inaudible) -- the expense side?

Yeah. Overall expenses, fourth quarter, if you go back and look, generally, we're down a little bit, all things being equal, just through some true-up of accruals and different things. So I wouldn't be surprised.

We definitely should be down, based off of what you talked about -- the [875] number. But, outside of that, we're generally down a little bit.

But, yeah, when we click over into the next year, there's always new things that come on. Some of that, as Cory said, will depend on new hires that we get in -- just, all the things that come around.

So dollars of non-interest expense after we get to next year. Again, I would think those do start going up. But, percentage-wise, I would look to see non-interest-expense percent increase.

Brett, this is Tyler. I think we're always looking for new hires that are the right fit. But, sometimes, it's just the long game, too. And I think that was some of our success this quarter.

When you've got somebody that you keep an eye on and keep relationships with, you just drip on them, and stay with them, and wait for it to be the right time for them to join your team

And so we'll continue to do that, as well as looking for more opportunistic ways to bring new members on our team.

Okay. If I'm reading the comments correctly, it sounds like the expense base could be a little lower in the fourth quarter, yeah, but then, have some build back over '27, as you continue to grow the franchise and all those type of things.

Yes. I would agree with that.

Okay. Great. Appreciate the color. Thanks, guys.

Thanks, Brent.

Joe Yanchunis, Raymond James.

Good afternoon, guys. So thanks for taking my questions.

But I was hoping to start with loan growth a little bit. You talked about how you added a couple more lenders. You have some past hires that are continuing to ramp.

Can you talk a little bit about how the pipeline has developed over the past few months? And do you think you'll be able to sustain this momentum into '27 with that mid-single-digit loan growth or potentially accelerate beyond that?

Yeah. Joe, I'll start off.

Our pipeline over the second half of the year has been much stronger than the first. And we continue to have a very, very healthy pipeline of both new originations, as well as construction funding, that we're still continuing to expect to have.

So, now, I feel very good about hitting our year projection for growth, for sure.

All right. (multiple speakers) -- and then -- I'm sorry, go ahead.

(inaudible) -- just talk about how the (inaudible) -- metro markets have continued to improve.

Yeah. So our metro markets now are really nearly half or more of our pipeline in total and, in prior years, that was probably more close to a third. So you're just seeing that really take root and give us a good backlog of new production to come on the books.

Joe, I think that's a reflection -- and this is Cory -- of not only the talent that we already had in place but the talent that we've been able to bring across and the things that are coming to fruition with the Bank of Houston acquisition.

And you talked about some of the pay-offs you had earlier this quarter. As you look at the portfolio today, are there any other sizable pay-offs that you're anticipating over the next couple of quarters that we should be thinking about?

Yeah. This is Brent.

I think it's become -- I don't want to say the norm but we've baked that into our thought process here. You're always going to have things that are coming down the pie; and we will have, more likely, in the fourth quarter.

And we've -- in my mind, I factored that into being confident we can hit where we think we'll hit by the end of the year.

These two that we (inaudible) -- just got called out on this call, there was nothing surprising about those.

The thing that I would like to go back and reiterate -- we've mentioned this before -- we have not, over the last 18 months, been in a position trying to exit some relationships. We're not there anymore.

We feel really good about the quality of the portfolio, as it exists today. And we're not in any position where we're trying to exit some stuff that we think doesn't really fit. We do like what we have.

We think we've accomplished all those things that we were trying to do.

Well, if you were to just focus on the credit of the portfolio, it looks like non-performing loans checked up a little bit, not to an alarming rate or anything. But can you give us some color on what drove those increases, any industry concentration or, perhaps, if those were originated by Bank of Houston?

Yeah. Those were both -- we had a few migrating to non-performing and those were acquired. That really drove that number.

We're actively involved and have been actively involved in remediation plans on those. In fact, the largest of the two has already been resolved to the point of being back to performing.

So we're running our normal process. And the ones that migrated during the quarter were -- it wasn't there. We knew the risk was there at the time of the merger. And I have been working those plans since then.

Yeah. They were already classified loans. They just moved a step, just so we could work on them.

I think we missed one by a week, just from a timing perspective -- the largest one of them. So that's why you saw a little tick up there.

Okay. That's helpful. And then, last one for me here: So we've recently seen Mechanics Bank sales, indirect auto loans near bulk value, while Truist exited its near-prime auto Business.

I know we've talked about the auto portfolio over the past few years and just giving it strong credit performance. But have you ever considered selling some of that portfolio today to redeploy capital into some other commercial-lending vehicles?

No, not really. We like this piece of business for us. And I understand how -- there's some of that business out there inside the industry that is a little bit challenged. We're just so careful about what we put on our books.

And, if you look at where we are from a liquidity standpoint, we still have plenty of liquidity to loan out. We're in a good capital position. I just don't think that's something that we're pressured with, right at this point.

Yeah. The super prime and prime portion of the portfolios, it's 90%, roughly. And so I think that it's a good diversification.

I know auto loans can, at time to time, be a hot button, when different reports come out. But that's, overall, why we like to stay on that end of the credit spectrum so it can weather that a whole lot better.

Yeah. This is Brent.

Yeah. And the credit quality that we've seen out of that has been exceptional. And, as a reminder, the duration on that portfolio is relatively short so it churns and provides good source of revenue for us.

Just remember, over 99% of that portfolio is cars. We are not big proponents of putting a lot of the recreational type things on the books like this.

And, if you look at where we stand on a past-due level, it's clean. (inaudible) -- as well.

Very well. All right. Well, I appreciate it. Thank you for taking my questions.

Thanks, Joe.

(Operator Instructions)

Stephen Scouten, Piper Sandler.

Yeah. Good afternoon, everyone.

Curtis, I wasn't on the call last quarter so I just want to say congrats on the coming transition. And, Cory, congrats on the appointment. And nice to have Tyler on the call.

So lots going on but, obviously, a lot of hard work has been done through the years to get you there so congrats to all.

Thank you, sir.

Thanks, Steven.

Definitely. Going back, maybe, to Brett's earlier question around expenses, I'm not sure if I heard you actually say -- do you know how much you have in terms of remaining costs (inaudible) -- related to the Bank of Houston deal and when you'd expect to extract those remaining savings?

Yeah. This is Steve.

Pretty much everything's in place now with them. So I think we should be in good shape on it.

(multiple speakers) -- not necessarily in the third quarter run rate but would be in the fourth quarter run rate? Is that the right way to think about it?

I would say, the bulk of it was in Q2. There were still some that ran through in Q3.

Okay. Great.

(multiple speakers) -- back to the fact that we've moved so quickly on the conversion.

Yeah. Yeah. No. That's impressive. The timeline (inaudible) -- is great.

And, maybe, just as you think about the mid-single-digit loan growth, I'm curious how -- where you expect the loan-to-deposit ratio to go from here; how you're thinking about the the balance sheet, overall.

Securities have been trending down for the last couple of quarters so where do you want the composition of that balance sheet to go to maximize profitability for the bank?

Yeah. I'll start.

I think we generally say, loan-to-deposit ratio, up to 85% or so -- is where we would like for it to be. Sometimes, it can be a little bit different at different times of year. But that's the number we would like to see.

As far as securities go, yeah, the numbers come down. We have, of late, started buying a little bit more, just maybe, to offset some of the pay downs, the cash flow that was coming back on some of that during the -- each month, not looking to increase overall securities portfolio but don't really want that to run down too much more because we do use those for pledging on public-fund deposits.

And so we like that. And (inaudible) -- definitely, yields have been higher on some of that but, overall, still want to stay relatively short in that portfolio, overall. So that's -- we want to make loans but we don't want to get that ratio too far out of whack.

I agree with Steve completely. We are very focused on the fact that, ideally, we would like to stay around an 85% loan-to-deposit ratio. There's no question.

And that's where we're heavily focused on it. And that's why we stay so focused on the talent acquisition that we've been on and how we're going to stay forward with that.

Yeah.

Just trying to keep a balance there -- credit quality and making sure that we can -- we like what we're bringing on.

Yeah. For sure. Okay. And then, maybe, just last thing for me: Like, how are you seeing -- I know you noted new loan yields in the [high-6s] -- and, maybe, how are you seeing spreads hold up in terms of those new loan yields versus, maybe, average deposit costs?

And, within that, how do you expect the NIM to hold up, wins the prospect of another couple of 25 basis points hikes?

Yeah. Again, if you look back at the last number of quarters and, really, the last couple of years, we've gotten the overall balance sheet -- we're just pretty neutral, overall; really, 25 basis points increase.

There's -- or even [50 basis points]. There's just not a whole lot of overall effect to us.

You're definitely right, as far as, there are some deposit rates out there -- CDs and money markets and other things that are now, unfortunately, back up in the [4s], mid-4s.

And so, new loan rates, it's upper-6s. Even that math doesn't work real well in the short-term. But I think overall portfolio that we've got and some of the things we can do, we feel good about where we're at.

Keep in mind -- we say this all the time -- but we've got to live to it a little bit. I think we've done a pretty good job with that -- is we use exception-based pricing as much as we can to try to counteract as much of this.

And we try to make sure that our team has the authority to make the decisions so that we can keep this stuff in place.

Yeah. Yeah. Good. Awesome. Thanks for the time, guys. Congrats on a really nice quarter.

Thank you.

Thanks, Steven.

Thank you. There are no further questions at this time. I'd like to hand the floor over to Curtis Griffith for any closing comments.

Thank you, operator. Thanks, everyone, that joined us today.

As this is my final earnings call as Chief Executive Officer, I want to take a moment to thank our shareholders and the analysts who have followed South Plains for their interest, support, and confidence in our company over the years.

I've greatly valued the relationships we've developed and the opportunity to share the South Plains story with you.

I could not be more confident in the position of the bank today. We have a strong balance sheet, an experienced leadership team, and meaningful opportunities to continue growing across our markets.

While my role will change at year end, I'm excited to continue working with Cory and the rest of the team as Chairman, as they execute our strategy and build the long-term earnings power of the bank.

Thank you, again, for your continued support of South Plains Financial.

This concludes today's conference. You may disconnect your lines at this time. Thank you, again, for your participation.