Q1 2025 South Plains Financial Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial first quarter 2025 earnings conference call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded.

Good afternoon, ladies and gentlemen, and welcome to the South Plains financial first quarter 2025 earnings conference call. During today's presentation, all parties will be in a listen only mode.

During the presentation conference will be opened for questions with instructions to follow at that time.

A reminder, this conference is being recorded.

Steven Crockett: I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead. Thank you, operator. And good afternoon, everyone. We appreciate you joining our earnings conference call.

I would now like to turn the call over to Steve Crockett, Chief Financial Officer, and Treasurer of South Plains financial.

Please go ahead.

Thank you operator, and good afternoon, everyone. We appreciate you joining our earnings conference call with me here today are just terrific.

Steven Crockett: With me here today are Curtis Griffith, our chairman and CEO, Cory Newsom, our president, and Brent Bates, the bank's chief credit officer. The related earnings press release and earnings presentation are available on the news and events section of our website, spfi.bank.

Speaker Change: Our chairman and CEO, Gregg <unk>, our president and Brent Bates.

Speaker Change: Chief Credit Officer.

Speaker Change: An earnings press release and earnings presentation are available on the news and events section of our website S. P. F. I don't think.

Steven Crockett: Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our Safe Harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied made during today's call are subject to those Safe Harbor State. Any forward-looking statements made during this call are made only as of today's date, and we did not undertake any duty to update such forward-looking statements except as required by law.

Speaker Change: Before we begin I'd like to remind everyone that any forward looking statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe Harbor statements in our earnings press release and in our earnings presentation.

Speaker Change: All comments expressed or implied made during today's call are subject to the safe Harbor statements.

Speaker Change: Any forward looking statements made during this call are made only as of today's date and we do not undertake any duty to update such forward looking statements, except as required by law.

Steven Crockett: Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings press release and in the earnings presentation.

Speaker Change: Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings press release and in the earnings presentation or this let me hand, it over to you.

Curtis Griffith: Curtis, let me hand it over to you. Thank you, Steve, and good afternoon. Starting on slide four of our presentation, we delivered strong first quarter results highlighted by solid deposit growth, healthy margin expansion as our cost of funds continued to improve. and Lone Growth, which was in line with our expectations. Additionally, the credit quality of our loan portfolio continued to strengthen in the quarter, which is a testament to our conservative culture and proactive approach to managing credit. This can be seen in our non performing assets total assets ratio, which improved to 16 basis points at the end of the first quarter down from 58 basis points at year end 2024.

Speaker Change: Thank you, Steve and good afternoon.

Speaker Change: Starting on slide four of our presentation, we delivered strong first quarter results highlighted by solid deposit growth healthy margin expansion, because our cost of funds continued to improve.

Speaker Change: And loan growth, which was in line with our expectations.

Speaker Change: Additionally, the credit quality of our loan portfolio continued to strengthen in the quarter, which is a testament to our conservative culture and proactive approach to managing credit.

Speaker Change: This can be seen in our nonperforming assets total assets ratio, which improved to 16 basis points at the end of the first quarter down from 58 basis points at year end 2024.

Curtis Griffith: We often say on these calls that we will never sacrifice credit quality to grow the bank. That is a core pillar of our culture, and we have been working hard for many years to position the bank to perform well through an economic downturn. We have continued to enhance the capabilities of our credit group, fostered a strong partnership between our production and credit teams, and have worked proactively to stay ahead of potential challenges. We believe the credit quality of our portfolio is strong and that we are in an advantageous position relative to some of our peers, especially given the uncertainty created by the new administration's recent tariff announcements, which certainly raises the possibility of a national recession during the year.

Speaker Change: We often say on these calls that we will never sacrifice credit quality to grow the bank that is a core pillar of our culture and we have been working hard for many years to position the bank to perform well through an economic downturn.

Speaker Change: We have continued to enhance the capabilities of our credit group fostering a strong partnership between our production and credit teams and have worked proactively to stay ahead of potential challenges.

Speaker Change: We believe the credit quality of our portfolio is strong and that we are in an advantageous position relative to some of our peers, especially given the uncertainty created by the new administration's recent tariff announcements, which certainly raises the possibility of a national recession during the year.

Curtis Griffith: Texas will not be immune from the effects of a recession, though we believe the state's pro-business and low-tax environment will continue to support economic growth above that of the broader U.S. economy. Our business is also more insulated from the proposed tariffs, given that our lending is focused more on commercial real estate than C&I loans that are dependent on manufacturing and industrial production. Importantly, we believe we have the liquidity, capital and team to take advantage of opportunities that can come in times of economic difficulty. In fact, we have refocused our efforts of adding lenders that fit our culture and can bring relationships to the bank.

Speaker Change: Texas will not be immune from the effects of a recession, though we believe the state's pro business and a low tax environment, well continue to support economic growth above that of the broader U S economy.

Speaker Change: Our business is I'll say more insulated from the proposed tariffs given that our lending is focused more on commercial real estate and C&I loans that are dependent on manufacturing and industrial production.

Speaker Change: Importantly, we believe we have the liquidity capital and team to take advantage of opportunities that can come in times of economic difficulties.

Speaker Change: In fact, we have refocused our efforts on adding lenders that fit our culture and can bring relationships to the bank.

Curtis Griffith: Looking forward, we will continue to selectively add to our team across both our major metropolitan and rural markets as we position the bank for continued organic growth over the medium term. We believe that we are in a strong position to capitalize on opportunities to drive growth as the bank and the company each significantly exceed the minimum regulatory capital levels necessary to be deemed well-capitalized. At March 31, 2025, our consolidated common equity Tier 1 risk-based capital ratio was 13.59%, and our Tier 1 leverage ratio was 12.04%. We have the capital to support our customers as they continue to expand their business.

Speaker Change: Looking forward, we will continue to selectively add to our team across both our major metropolitan and rural markets as we position the bank for continued organic growth over the medium term. We believe that we are in a strong position to capitalize on opportunities to drive growth as the bank and the company each.

Speaker Change: Significantly exceed the minimum regulatory capital levels necessary to be well capitalized at March 31, 2025, our consolidated common equity tier one risk based capital ratio was 13.59% and our tier one leverage ratio was 12, 4%.

Speaker Change: We have the capital to support our customers as they continue to expand their businesses.

Curtis Griffith: Given our capital position, we remain focused on both growing the bank while also returning a steady stream of income to our shareholders through our quarterly dividends. previously announced this past week, our board of directors authorized a 15 cents per share quarterly dividend, which will be our 24th consecutive quarterly dividend. We also continue to believe that our shares are trading below their intrinsic value and do not reflect the many growth opportunities that lie ahead to further build the bank. As a result, and as previously announced, our board authorized a $15 million stock repurchase program in February, and we spent $8.3 million to repurchase 250,000 shares in the first quarter.

Speaker Change: Given our capital position, we remain focused on both growing the bank. While also returning a steady stream of income to our shareholders through our quarterly dividend.

Speaker Change: As previously announced this past week, our board of directors authorized a 15 cents per share quarterly dividend, which will be our 24th consecutive quarterly dividend.

Speaker Change: We also continue to believe that our shares are trading below their intrinsic value and do not reflect the many growth opportunities that lie ahead to further build the bank.

Speaker Change: As a result, and as previously announced our board authorized a $15 million stock repurchase program in February and we spent $8 $3 million to repurchase 250000 shares in the first quarter, we have approximately $7 million of capacity remaining under the program, which.

Curtis Griffith: We have approximately $7 million of capacity remaining under the program, which continues to provide flexibility during volatile market environments, as we have been experiencing Looking forward, we will continue to balance our buyback with liquidity for growth as well as being mindful of the continued economic uncertainty that exists.

Speaker Change: <unk> continues to provide flexibility during volatile market environments as we had been experiencing.

Speaker Change: Looking forward, we will continue to balance our buyback with liquidity for growth as well as being mindful of the continued economic uncertainty that exists.

Curtis Griffith: Turning briefly to M&A, we had expected community bank M&A activity to pick up this year, but the current general uncertainty has made both buyers and sellers reluctant to make major decisions. That said, a more prolonged downturn could reduce seller expectations to more reasonable levels and serve as a catalyst to drive more deals. Our focus remains on growing the bank organically and we believe our liquidity, capital, people and the credit quality of our loan portfolio uniquely positions us to support our customers and gain market share. While economic growth may slow through the rest of the year, we remain focused on expanding our lending platform and working to bring long term customer relationships to Citibank.

Speaker Change: Turning briefly to M&A, we had expected community bank M&A activity to pick up this year, but the current general uncertainty has made both buyers and sellers are reluctant to make major decisions.

Speaker Change: That said, a more prolonged downturn could reduce seller expectation store at reasonable levels and serve as a catalyst to drive more deals.

Speaker Change: Our focus remains on growing the bank organically and we believe our liquidity capital people and the credit quality of our loan portfolio uniquely positions us to support our customers and gain market share.

Speaker Change: While economic growth may slow through the rest of the year, we remain focused on expanding our lending platform and working to bring a long term customer relationships to Citibank now, let me turn the call over to Corey.

Cory Newsom: Now let me turn the call over to Cory. Thank you, Curtis. And good afternoon, everyone. Starting on slide five, our loans held for investment increased $20.8 million or 2.7% annualized to $3.08 billion in the first quarter as compared to the link quarter. We've experienced loan growth in commercial owner occupied real estate loans and commercial goods and services loans partially offset by the expected seasonal decrease in our agricultural production loans. Our yield on loans was 6.67% in the first quarter essentially unchanged from the 6.69% in the link quarter. We were able to keep the yield relatively constant, despite the effect of a full quarter of the reduction in short-term rates that occurred during the last four months of 2024.

Corey: Thank you Curtis and good afternoon, everyone starting on slide five our loans held for investment increased $28 million or two 7% annualized to $3.08 billion in the first quarter as compared to the linked quarter, we experienced loan growth in commercial owner occupied real estate loans and commercial goods and services loans, partially offset by do you expect.

Corey: It's seasonal decrease in our agricultural production logs, our yield on loans was $6 six 7% in the first quarter essentially unchanged from the $6 six 9% in the linked quarter.

Corey: We were able to keep the yield relatively constant despite the effect of a full quarter of the reduction in short term rates that occurred during the last four months of 2024.

Cory Newsom: Looking forward, we expect the yield on our loan portfolio to stabilize near current levels pending further short-term interest rate changes by the Federal Reserve. Skipping to slide 7, loans in our major metropolitan markets of Dallas, Houston, and El Paso decreased by $18 million in the first quarter to $1.04 billion. While new loan production in these markets is building over the past two quarters, these markets also observed a higher level of scheduled and early payments on loans that exceeded new loan production. We anticipate early payments on loans may remain elevated for the remainder of the first half of the year before moderating in the second half.

Corey: Looking forward, we expect the yield on our loan portfolio to stabilize near current levels pending further short term interest rate changes by the fed reserve.

Corey: Given the slide seven loans that are major metropolitan markets of Dallas, Houston, and El Paso decreased by $18 million in the first quarter to $1.04 billion.

Corey: New loan production in these markets is building over the past two quarters. These markets also observed a higher level of scheduled repayments on loans that exceeded new loan production.

Corey: We anticipate early payments on loans they remain elevated for the remainder of the first half of the year before moderating in the second half our current pipeline for our Metro market remained strong, particularly in El Paso in Houston.

Cory Newsom: Our current pipeline for our metro market remains strong, particularly in El Paso and At quarter end, our metro loan portfolio represented 33.8% of our total loan portfolio. Turning to the Permian, our efforts to build our brand in this market are beginning to pay dividends as we are attracting high quality customer relationships to Citibank. We've demonstrated to the market that we are positioned to support our customers over the long term, which is resonating, especially giving competitor acquisitions which are creating customer dissatisfaction and dislocation. Our success can be seen in our first quarter results, where we had the strongest loan growth in a single quarter since entering the market in 2019.

Corey: Quarter end, our major metro blown portfolio represented 33, 8% of our total loan portfolio.

Corey: Turning to the Permian our efforts to build our brand in this market are beginning to pay dividends as we are attracting high quality customer relationships to Citibank.

Corey: We have demonstrated to the market that we are positioned to support our customers over the long term, which is resonating, especially giving competitive acquisitions, which are creating customer dissatisfaction and dislocation.

Corey: Our success can be seen in our first quarter results, we had the strongest loan growth in a single quarter since entering the market in 2019 I would also reiterate that we are doing business with customers that are energy service industry with long histories of success through cycles. While we also underwrite loans to much lower oil prices to ensure our portfolio is insulated from downturns.

Cory Newsom: I would also reiterate that we are doing business with customers in the energy service industry who have long histories of success through cycles, while we also underwrite loans to much lower oil prices to ensure our portfolio is insulated from downtime. Skipping to slide 9, our indirect auto loan portfolio grew $7 million to $243 million at the end of the first quarter as compared to $236 million at the end of the linked quarter. As we've discussed on our prior calls, we have carefully managed the portfolio over the last year with a focus on maintaining its credit quality as competitors have been more aggressive at the higher or better end of the credit spectrum as volumes have declined.

Corey: Shifting to slide nine our indirect auto loan portfolio grew $7 million to $243 million at the end of the first quarter as compared to $236 million at the end of the linked quarter.

Corey: We've discussed on our prior calls we have carefully managed the portfolio over the last year with a focus on maintaining its credit quality as competitors have been more aggressive at the higher or better end of the credit spectrum as volumes have declined while.

Cory Newsom: While the competitive environment has improved, we remained very conscious of the economic backdrop and potential stresses that the tariffs could create on the economy and a consumer as well as used car prices. As a result, we've tightened our loan devalue requirements to ensure we proactively manage the current environment and any potential challenges to come. We believe the credit quality of our indirect portfolio remains very strong and are pleased to see our 30-plus days past due loans decline to 41 basis points from 47 basis points in the fourth quarter. We believe our tightening credit standards will further protect the bank and credit profile of our indirect auto portfolio.

Corey: While the competitive environment has improved we remained very conscious of the economic backdrop and potential stresses that the terrorists take three eight on the economy and the consumer as well as used car prices.

Corey: As a result, we've tightened our loan to value requirements to ensure we proactively manage the current environment and any potential challenges to come.

Corey: We believe the credit quality of our indirect portfolio remains very strong and are pleased to see our 30 plus days past due loans declined 41 basis points from 47 basis points in the fourth quarter.

Corey: We believe our tightening credit standards will further protect the bank and credit profile of our indirect auto portfolio.

Cory Newsom: Looking ahead to the remainder of 2025, we remain cautiously optimistic that the economic growth across our Texas markets can remain resilient, though we are cognizant of the uncertainty that has been created. As a result, we would expect our loan growth to trend to the lower end of our low to mid single-digit range for the full year of 2025. Turning to slide 10, we generated $10.6 million of non-interest income in the first quarter as compared to $13.3 million in the linked quarter. This was primarily due to a decrease of $2.8 million in mortgage banking revenues, mainly from a decrease of $3 million in the Fair Value Adjustment of Mortgage Servicing Rights Asset as interest rates that affect the value decreased in the first quarter of 2025.

Corey: Looking ahead to the remainder of 2025, we remain cautiously optimistic that the economic growth across our Texas markets and remain resilient, but we are cognizant of the uncertainty that has been created as a result, we would expect our loan growth to trend to the lower end of our low to mid single digit range for the full year 2025.

Corey: Turning to slide 10, we generated $10 $6 million of noninterest income in the first quarter as compared to $13 $3 million in the linked quarter.

Corey: This was primarily due to decrease of $2 $8 million in mortgage banking revenues, mainly from a decrease of $3 million in the fair value adjustment of mortgage servicing rights asset as interest rates that affect the value decreased in the first quarter of 2025.

Cory Newsom: We've begun to selectively hire to position our business for a positive turn in the residential housing cycle, which we expect will occur eventually given the pen of demand that exists as a result of in-migration and demographic trends. That said, we will remain vigilant with a tight focus on managing the expense structure of this business compared to revenues to ensure we maintain our profitability. For the first quarter, non-interest income was 22% of bank revenues as compared to 26% in the fourth quarter. Continuing to grow our non-interest income remains a focus of our...

Corey: We've begun to selectively hire to position our business for a positive turn in the residential housing cycle, which we expect will occur eventually given the pent up demand that exists as a result of in migration and demographic trends that said, we will remain vigilant with a tight focus on managing the expense structure of this business compared to revenues to ensure.

Corey: We maintain our profitability.

Corey: For the first quarter noninterest income was 22% of bank revenues as compared to 26% in the fourth quarter continued to grow our noninterest income remains a focus of our team.

Steven Crockett: I would now like to turn the call over to Steve. Thanks, Cory. For the first quarter, diluted earnings per share was $0.72 compared to $0.96 from the linked quarter. Of note, there was a $0.14 per share after tax differential in the Mortgage Servicing Rights Fair Value Adjustment in the first quarter as compared to the fourth quarter. Starting on slide 12, net interest income was $38.5 million for the first quarter, unchanged from the linked quarter. are net interest margins calculated on a tax equivalent basis. 3.81% in the first quarter as compared to 3.75% in the linked quarter.

Steve Crockett: I would now like to turn the call over to Steve.

Steve Crockett: Thanks Corey.

Steve Crockett: For the first quarter diluted earnings per share was <unk> 72 cents compared to 96 cents from the linked quarter of note. There was a <unk> 14 per share after tax differential in the mortgage servicing rights fair value adjustment in the first quarter as compared to the fourth quarter.

Steve Crockett: Starting on slide 12, net interest income was $38 5 million for the first quarter unchanged from the linked quarter.

Steve Crockett: Our net interest margin calculated on a tax equivalent basis.

Steve Crockett: It was $3 eight 1% in the first quarter as compared to $3, 75% in the linked quarter.

Steven Crockett: The sixth basis point increase to our NIM was primarily due to a ten basis point decline in our cost of deposits in the quarter, as we experienced a full quarter of the effects of repricing our interest bearing deposits as the Fed reduced their short-term interest rate in the last four months of 2024. Our non-interest bearing deposits were 25.5% of total deposits in the first quarter as compared to 25.8% in the linked quarter. Slight decrease was due to a $140.7 million increase in interest bearing deposits during the quarter as we experienced a large inflow of public fund deposits as well as organic growth in retail and commercial deposits.

Steve Crockett: A six basis point increase to our NIM was primarily due to a 10 basis point decline in our cost of deposits in the quarter.

Steve Crockett: As we experienced a full quarter of the effects of repricing, our interest bearing deposits as the fed reduce their short term interest rate in the last four months of 2024.

Steve Crockett: Our noninterest bearing deposits were 25, 5% of total deposits in the first quarter as compared to 25, 8% in the linked quarter.

Steve Crockett: The decrease was due to a $147 million increase in interest bearing deposits during the quarter as we experienced a large inflow of public fund deposits as well as organic growth in retail and commercial deposits.

Steven Crockett: As outlined on slide 13, deposits increased by $171.6 million to $3.79 billion at the end of the first quarter. Our cost of deposits was 219 basis points in the first quarter, down from 229 basis points in the linked quarter. I would add that the noted inflow of public fund deposits contributed to the deposit strength this quarter, and we would expect to see some of this to flow back out in the second quarter, as well as quarterly tax payments, which we typically see seasonally.

Steve Crockett: As outlined on slide 13 deposits increased by $171 6 million to $3 $79 billion at the end of the first quarter.

Steve Crockett: Our cost of deposits was 219 basis points in the first quarter down from 229 basis points in the linked quarter.

Steve Crockett: I would add that the noted inflow of public fund deposits contributed to the deposit strength this quarter and we would expect to see some flow back out in the second quarter as well as quarterly tax payments, which we typically see seasonally.

Steven Crockett: Turning to slide 15, a ratio of allowance for credit losses to total loans held for investment was 1.40% at March 31, 2025, a decrease of two basis points from the end of the prior We recorded a $420,000 provision for credit losses in the first quarter. which was largely attributable to net charge-off activity and increased loan balances, partially offset by improved credit quality. The improved credit quality was largely a result of placing the $19.0 million multifamily property loan in Houston back on accrual status. given that the loan has demonstrated sustained payment performance and has an overall improved credit structure without granting concessions.

Steve Crockett: Turning to slide 15, our ratio of allowance for credit losses to total loans held for investment was one 4% at March 31 2025.

Steve Crockett: A decrease of two basis points from the end of the prior quarter.

Steve Crockett: We recorded a $420000 provision for credit losses in the first quarter.

Steve Crockett: Which was largely attributable to net charge off activity and increased loan balances, partially offset by improved credit quality.

Steve Crockett: The improved credit quality was largely a result of placing the $19.1 million multifamily property loan in Houston back on accrual status.

Steve Crockett: Given that alone has demonstrated sustained payment performance and has an overall improved credit structure without granting concessions.

Steven Crockett: This has driven a sharp improvement in our non-performing loans, which now total $6.5 million at the end of the first quarter, as compared to $24.0 million in the fourth quarter.

Steve Crockett: This has driven a sharp improvement in our nonperforming loans, which now total $6 $5 million at the end of the first quarter as compared to $24.8 million in the fourth quarter.

Steven Crockett: Subsequent to quarter end, this multifamily credit was repaid in full.

Steve Crockett: Subsequent to quarter in this multifamily credit was repaid in full.

Steven Crockett: Skipping ahead to slide 18, our non-interest expense was $33.0 million in the first quarter as compared to $29.9 million in the linked quarter. As we discussed on our fourth quarter call, we expected our first quarter 2025 non-interest expense to be more in line with that of the third quarter of 2024, given the number of one-time benefits that we experienced in the fourth quarter of 2024. Looking forward, we currently expect the first quarter's non-interest expense will be a good run rate for the balance of the year. Moving to slide 20, we will remain well capitalized with tangible common equity to tangible assets of 9.64% at the end of the first quarter, a decrease of 28 basis points from the end of the fourth quarter, as our total assets grew 16% annualized.

Steve Crockett: Skipping ahead to slide 18, our noninterest expense was 33 point out $1 million in the first quarter as compared to $29 $9 million in the linked quarter as.

Steve Crockett: As we discussed on our fourth quarter call. We expected our first quarter 2025 noninterest expense to be more in line with that of the third quarter of 2024, given the number of one time benefits that we experienced in the fourth quarter of 2024 looking.

Steve Crockett: Looking forward. We currently expect the first quarter's noninterest expense will be a good run rate for the balance of the year.

Steve Crockett: Moving to slide 20, we remain well capitalized with tangible common equity to tangible assets of 964%.

Steve Crockett: At the end of the first quarter, a decrease of 28 basis points from the end of the fourth quarter as our total assets grew 16% annualized Andrew.

Steven Crockett: Tangible book value per share increased to $26.05 as of March 31, 2025, compared to $25.40 as of December 31, 2024. The increase was primarily driven by $9.8 million of net income after dividends paid and by a $2.7 million increase in accumulated other comprehensive income, partially offset by stock repurchases of $8.3 million.

Steve Crockett: Tangible book value per share increased to $26.05 as of March 31, 2025, compared to $25 40 as of December 31 2024.

Steve Crockett: The increase was primarily driven by $9.8 million and net income after dividends paid and by $2 $7 million increase in accumulated other comprehensive income, partially offset by stock repurchases of $8 $3 million.

Steven Crockett: 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.

Steve Crockett: This concludes our prepared remarks, I will now turn the call back to the operator to open the line for any questions operator.

Steve Crockett: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Operator: Well, now we conduct a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing your star key. One moment, please, while we poll for questions.

Speaker Change: A confirmation tone will indicate your line is my question queue. You May press star two to remove your question from the queue.

Speaker Change: For participants using speaker equipment may be necessary to pick up the handset before pressing your sarkies one moment. Please while we poll for questions.

Woody Lay: Our first question is from Woody Lay with KBW. Hey, good afternoon, guys. I'm Woody. Wanted to start on deposit costs. I mean, y'all have done a really good job over the past couple quarters bringing that down. Do you think there's room to continue to move deposit costs down from here? Are we sort of at a, are we hitting the trough level?

Woody Lay: Our first question is from Woody lay with K B W.

Woody: Hey, good afternoon guys.

Woody Lay: Alrighty.

Woody Lay: Wanted to start on deposit costs I mean, you all have done a really good job over the past couple of quarters, bringing that down.

Woody Lay: I mean do you think there's room to continue to move deposit costs down from here or are we sort of at a.

Woody Lay: Or are we hitting the trough level.

Steven Crockett: Yeah, Woody to Steve, I'll start and let anyone else jump in. I mean, we've we've done we've done the There's a bulk of the work, but there's definitely some accounts, some of the exception pricing maybe that we've got that we continue to look at. We were proud of how the quarter ended up and where we are there. But there is some room on some of those accounts, especially given kind of where our liquidity is today. I mean, you saw our growth in deposits, so that gives us a little bit more room to maybe be able to absorb some loss if we happen to see that.

Speaker Change: Yeah, what are your just Steve I'll start and let anyone else jump in I mean, we've we've done we've done that the bulk of the work, but there's there are definitely some some accounts.

Speaker Change: Some of the exception pricing maybe that we've got that we continue to look at them. We were proud of how the quarter ended up and where.

Speaker Change: Where we are there, but there there is some room.

Speaker Change: On some of those accounts and given especially given kind of where where our liquidity is today. I mean, you saw our growth and growth in deposits. So that gives us a little bit more room to.

Speaker Change: Maybe you'd be able to absorb some some loss if we happen to see that if we.

Curtis Griffith: change some of that pricing. Woody, I mean, there's not much you can add to what Steve just said. I mean, I think that I think the thing that I agree with him more than anything is, yeah, there's room. And we're trying to balance that between trying to make sure that we keep the level of liquidity that we're comfortable with without overpaying. And we look every day how we can cut a little bit more. And we continue to find it. But yeah, I think there's we we have every desire and intention to continue to build a bigger margin.

Speaker Change: Change some of that pricing.

Speaker Change: What do you mean, there's not much you can add to what Steve just said I mean I think.

Speaker Change: I think the thing that I agree with him more than anything is yeah, Theres route and we're trying to balance that between trying to make sure that we keep the level of liquidity that we're comfortable with that.

Speaker Change: So we're playing in.

We we look everyday how we can cut a little bit more and we continue to find it but yeah I think there is.

Speaker Change: We had every desired and intention to continue to build a bigger margin.

Curtis Griffith: Yeah, yeah, that that kind of goes into my next question with, you know, paired paired on the loan side, the loan yields have been pretty sticky the past couple quarters. So I mean, do you think the margin can continue to move higher from here? Yeah, again, some of that will depend on what overall liquidity does, you know, and given where given where loans are able to fund. So I don't know that we would see an expansion of it. I mean, we were up six basis points. I don't know that we'd be able to duplicate that again, necessarily, outside of any one-time things that would come through, but we would like to continue to expand it.

Speaker Change: Yeah, Yeah that that kind of goes into my next question with per paired on the loan side, but the loan yields have been pretty sticky the past couple of quarters, but so I mean do you think the margin can continue to move higher from here.

Speaker Change: Yeah again, some of that will depend on what overall liquidity does.

Speaker Change: You know.

Speaker Change: And given where given where loans are able to fund.

Speaker Change:

Speaker Change: So I.

Speaker Change: I don't know that we would see expansion of it I mean, we were up six six basis points I don't know that we'd be able to duplicate that again necessarily outside of any one time.

Speaker Change: Things that would that would come through but.

Speaker Change: We would we would like to continue to expand it it may be it may be a little bit less than that.

Curtis Griffith: It may be a little bit less than that. I mean, Woody, you've looked through our stuff and you know that we've talked about we've had a little bit of runoff on loans. We're okay with some of that because some of those were cheap loans. And the fact that we've got some repricing that's still in place over the next 24 plus months. I don't really think you're going to see the compression. I think there may be a little bit of room for expansion, and we're never going to be the guys who are going to go out there and tell you that we can do a whole lot more than we can, but I think we've got room.

If.

Speaker Change: You've lived through our stuff and you know that we've talked about we've had a little bit of run off on loans. We're okay with some of that because some of those were cheap loans.

Speaker Change: And the fact that we've got some repricing that is still in place over the next 24 plus months.

Speaker Change: I don't really think youre going to see the compression I think there might be a little bit of room for expansion and we're never going to be the guy that's going to go out there and tell you that we can do a lot more than we can but I don't.

Speaker Change: I think we've got room.

Curtis Griffith: Yeah, I mean, again, we're starting with a good A lot of other banks, we're starting from a lot lower net interest margin number. We've been able to keep ours at pretty good level, so not quite as much upside on some of that, but yeah, we'll continue to, we watch it every day.

Speaker Change: Yeah.

Speaker Change: Again, we're starting with a good.

Speaker Change: A lot of other banks, we're starting from a lot lower net interest margin number or we've been able to to keep ours at pretty good levels. So there's not quite as much.

Speaker Change: Upside on some of that but yeah, we will continue to watch it every day.

Steve Crockett: Okay, and where does this Kurdish I think as Steve touched on credit it to our high levels of liquidity did give us a little extra flexibility I mean, I hope, we start seeing more pick up in loan volume.

Curtis Griffith: Curtis, I think as Steve touched on, Cory did too, our high levels of liquidity do give us a little extra flexibility. I mean, I hope we start seeing more pickup in loan volume. But there's so much uncertainty out there right now, it's going to be a challenge. But if we do get a little pickup there, I think we could continue to push the NIM up a little bit because those loans will come on at current pricing. And again, everything looks like it's setting up that those rates may stay about this level. I don't know that we're going to see a move back up.

Steve Crockett: That there's so much uncertainty out there right now it's going to be a challenge, but if we do get a little pick up there I think we could continue to push them up a little bit because those loans will come on.

Steve Crockett: At current pricing and again everything looks like its setting up that those rates may stay about this level I don't know that we're gonna see it move back up but I don't know that the expected additional 100 points.

Curtis Griffith: But I don't know that the expected additional 100 points drop that we originally were kind of looking at over the next eight to 12 months, that may not happen. I realize there's certainly pressure from the administration to cut it. But if you look at where the overall economy is going, and if we do continue to have the inflationary pressure, I think we're going to be able to hold the line on the loan pricing. And as we've said, we just don't have to bid up to buy deposits, we're getting some good deposit growth in even at the levels that we currently price.

Steve Crockett: Drop that we originally were kind of looking out over the next eight to.

12 months that might not happen I realize there is certainly pressure from the administration to cut it but if you look at where the overall economy is going and if we do have continued to have the inflationary pressure I think we're going to be able to hold line on the on the loan pricing and as we've said.

Steve Crockett: We just don't have to be adopted by deposits, we're getting some good deposit growth even at the levels that we currently brush.

Woody Lay: That's that's great color.

Steve Crockett: That's great color and maybe just last for me on loan payoffs that I I think you caught out some elevated pay off and that could persist.

Woody Lay: Maybe just last for me on loan payoffs. I think you called out some elevated payoffs and that could persist next quarter. Any way to frame the dollar amount of payoffs you saw in the first quarter and how that might compare to previous quarters?

Steve Crockett: Next quarter any way to frame the dollar amount of payoffs you saw in the first quarter and how that might compare to previous quarters.

Brent Bates: Yeah, this is, this is Brent. I think our payoffs were probably 10 million or so higher in the in the first quarter relative to the fourth quarter of last year. We just see, I think, more so going forward. There are some larger real estate credits that we expect are going to pay off and including the multifamily that was mentioned in the introduction. And that's, we think, probably more likely in the second quarter, maybe bleeding over in the third, third quarter of this year, but it could be higher than our first quarter. But the other side of that coin is our production is higher as well.

Brent: Yeah. This is this is Brent.

Brent: I think our payoffs were probably.

Brent: 10, 10 million or so higher than that.

Brent: In the first quarter relative to the fourth quarter of last year.

Brent: We just see I think more so going forward.

Brent: There are some larger real estate credits that we expect are going to pay off and including the multifamily that was mentioned.

Brent: And the introduction.

Brent: And that's we think probably more likely in the second quarter may be bleeding over into the third.

Brent: Third quarter of this year, but.

Brent: It could be higher than our first quarter, but the other side of that coin is our production.

Brent: It was higher as well and our pipelines remain healthy.

Brent Bates: And our pipelines remain healthy. And so, you know, the net effect of it, I think, you know, I think we can work hard and overcome those payoffs. And we're okay with the payoffs that are anticipated. Some are lower rates, some are we're expected to pay off. So A lot of these were, I mean, a lot of the stuff that we're seeing is just stuff that was going to stabilize and move out anyway, we're not seeing anything. I mean, we don't have this rash of payoffs that are coming. And I mean, we're $10 million ahead. That's one month.

Brent: So the net effect of it I think.

Brent: I think we can.

Brent: Work hard in and overcome those pay offs and we're okay with the payoffs that are.

Brent: Anticipated summer lower right summer, we're expected to pay off so.

One of these I mean, a lot of the stuff that we're seeing is just stuff that was going to stabilize and move out anyway. We're not seeing anything I mean, we don't have this rash of payoffs that are coming in I mean were $10 million of hit that's the one month I mean in the whole scheme of things.

Brent Bates: I mean, in the whole scheme of things, you know, I mean, we're gonna, we're gonna show you how the numbers stack up, but there's nothing that we see that's out of character for us. Got it.

Yeah.

Brent: We're going to show you how that number stack up but there's nothing that we see that's not out of character for us.

Brent: Got it alright, thanks for taking my question.

Woody Lay: All right. Thanks for taking my question. Thank you.

Brent: Excellent. Thank you thanks Woody.

Operator: Thanks Woody. As a reminder, if you'd like to ask a question, please press star 1.

Brent: As a reminder, if you'd like to ask a question. Please press star one.

Brent: Oh.

Joe Yanchunis: Our next question is from Joe Yanchunis with Raymond James. Good afternoon. Joe. So you have a history of taking advantage of market disruption to add talent. How would you characterize the current hiring landscape? And how many new hires have you budgeted for the year? And in your prepared remarks, you talked about kind of growing your headcount within mortgage ahead of a Hopeful Housing Recovery. Do you think that hiring within mortgage will continue? I mean, yeah, I mean, we're, we have, we're always looking for good talent, but we're not going to hire just to hire, I would tell you as a general rule.

Speaker Change: Our next question is from Julianna <unk> with Raymond James.

Brent: Okay.

Julianna: Good afternoon.

Brent: Yeah Joe.

Brent: Yeah.

Speaker Change: Well you have a history of taking advantage of market disruptions.

Speaker Change: Talents are how would you characterize the current hiring landscape.

Speaker Change: Now let me new hires have you budgeted for the year.

Speaker Change: Your prepared remarks, you talked about kind of growing your head count.

Speaker Change: Within the mortgage ahead of us.

Speaker Change: [noise] hopeful housing recovery do you think about hiring within mortgage will continue.

Speaker Change: I mean, yeah I mean, we're we haven't we're always looking for good talent, but we're not going to hire just to hire I would tell you as a general rule.

Curtis Griffith: We're really comfortable hiring in any market we have right now. We think we have the capacity to do it. That said, we're not going to go overzealous trying to just hire 20 lenders just to try to figure out what we can do. So we're in our season. I mean, if you look at typically most of the time, people are pretty tied down to the first quarter. And so now we're starting to see it open back up a little bit. You know that we take a more rigorous approach to our hiring because we're very selective on who we're going to bring on.

Speaker Change: We are really comfortable hiring in any market. We have right now I mean, we think we have we have the capacity to do it that said, we're not going to go overzealous trying to just hire 20 lenders just trying to figure out what we can do so.

Speaker Change: We're in our season I mean, if you if you look at typically most of the time people are pretty tied down to the first quarter and so now we're starting to see it help them back up a little bit you know that we've taken a more rigorous approach to our hiring because we're very selective of who we're going to bring on.

Curtis Griffith: But we're actively, we are hiring and we're actively looking and we're very comfortable looking at any of the markets that we have.

Speaker Change: But we're actively we are hiring and we're actively looking and we're very comfortable looking at and these are markets that we have.

Speaker Change: Yeah.

Curtis Griffith: Joe, this is Curtis. Just as an illustration, you mentioned mortgage. We had one of our long time, really one of our best mortgage markets, in which we had a couple of retirements of people that we hated to lose. They were really well known in the market, did a great job. And we've been looking for a while to try to find someone to bring into that market. Well, we finally had a chance. And this person's been a great track record, long time mortgage person in that market. And we jumped at the chance to bring her on.

Joe: Joe. This is part is just as an illustration.

Speaker Change: You mentioned mortgage.

Speaker Change: We had one of our longtime really one of our best mortgage markets in which we had a couple of retirements of people that are we hated to lose they were they were really well known in the market did a great job and we've been looking for a while to try to find someone to bring into that market well. We finally had a chance.

Speaker Change: This person has been a great track record long time mortgage person in that market and we jumped at the chance to bring wrong. So that's kind of thing really lack of course, you have to go out and just blanket hire some people just to grow head count.

Joe Yanchunis: So you know, that's the kind of thing we'll do. Like Cory said, we're not going to go out and just blanket hire some people just to grow headcount. It's got to be somebody that really makes sense and is a good fit for us. I appreciate it.

Speaker Change: Somebody didn't really make sense and is a good fit for us.

Speaker Change: I appreciate it.

Joe Yanchunis: And just kind of In your prepared remarks you talked about the opportunity in the Permian.

Speaker Change: And just kind of.

Speaker Change: In your prepared remarks, you talked about the opportunity in the Permian.

Unknown Executive: What concentration of your loan portfolio is in energy and kind of how much growth did you see in the quarter? Unknown Speaker https://www.youtube.com should be on. No, actually, yeah, this one does not have that didn't break it. I'm sorry. Yeah, this one does not have it. Let me, let me pull that for you. Just, just a second. Now, this just broke it out by type, but not by... Let him pull that... See if there's something else we can answer while he's pulling it. around 4%. Did you hear that, Joe? Okay. Yeah, around 4%. Yeah, 4%.

Speaker Change: What kind of generation of your loan portfolio is in energy and.

Speaker Change: How much growth did you see in the quarter.

Speaker Change: It was U H.

Slide eight.

Speaker Change: Uh huh.

Speaker Change: What did I Miss one.

Speaker Change: It should be on.

Speaker Change: Alright.

Speaker Change: No actually this one does not have that didn't break if I'm sorry, yeah.

Speaker Change: This one does not have unresolved in C&I.

Speaker Change: Let me, let me pull that forward just a second.

Speaker Change: Yeah, Theres just broken out by type.

Speaker Change: Let me pull that.

Speaker Change: Let's see if there's something else, we could answer while he's pulling it.

Speaker Change: Uh huh.

Speaker Change: Under Bob.

Speaker Change: Yeah, I think it's I think it's about fair.

Speaker Change: We're at 4%.

Speaker Change: Did you hear that Joe Authentical, yeah around four.

Speaker Change: 4%.

Curtis Griffith: Really driven largely by energy service business rather than direct E&P. But it's around 4% and that doesn't include all the other loans in the Permian area, but does include our service business.

Speaker Change: Really driven largely by.

Speaker Change: Energy service business, rather than direct E&P.

Speaker Change: But it's it's around 4% and that doesn't include all the other loans in the Permian area, but does include our our service business.

Cory Newsom: Okay, and then I'm just trying to X mortgage. How would you characterize the outlook from here for fee income? Yeah, I mean, I'll start, I mean, fee income, by and large, is, you know, dependent upon Unmortgaged. That's Typically the biggest piece of that and so if we exclude that for a minute I would say you know fee income and most of most of the other areas have been have been growing definitely year-over-year some of them maybe not necessarily quarter-over-quarter but we've we have seen some growth and most of the other most of the other other lines So I think we feel good about where those are and maybe not huge increases, but just continue to try to try to advance those mortgage and I'll let Cory speak a little bit more on mortgage.

Speaker Change: Okay and then.

Speaker Change: Just kind of ex mortgage.

Speaker Change: How would you characterize kind of the outlook from here for fee income.

Speaker Change: Yeah.

Speaker Change: I'll start I mean fee income by and large is.

Speaker Change: Dependent upon.

Speaker Change: On mortgage debt.

Speaker Change: Typically the biggest piece of that and so if we exclude that for a minute I would say fee income and most of that most of the other areas.

Speaker Change: <unk> had been had been growing but.

Speaker Change: Definitely year over year, some of them, maybe not necessarily quarter over quarter, but we have seen some growth in most of the other most of the other other lines.

Speaker Change: So.

Speaker Change: I think we feel good about where those are and maybe not huge increases but.

Speaker Change: Just just continue to try to try to advance those mortgage and I'll, let corey speak a little bit more on mortgage I think.

Cory Newsom: I think you kind of get some mixed signals of where the mortgage market is and where that's going to end up with mortgage rates and what we'll be able to accomplish there. We thought, I mean, our guys are, they're of the position right now that we probably will outperform 24 slightly. Nothing, we're not going to set the world on fire, but as far as for the volume, year to date, that we should continue to outperform just a little bit. You know, if you look at Treasury, I mean, It's to me, it's not huge needle movement.

Speaker Change: You kind of give some mixed signals.

Speaker Change: The mortgage market is and where that's going to where that's going to end up with with with mortgage rates and what we'll be able to accomplish there.

Speaker Change: We felt I mean, our guys are thereof, the position right now that we probably will outperform 24 slightly.

Speaker Change: We're not gonna set the world on fire, but as far as for the volume.

Speaker Change: Year to date that we should continue to outperform just a little bit you know if you look at Treasury I mean.

Speaker Change: It's to me, it's not huge needle move them, but if you look at percentage wise of the treasury increases that we're seeing I mean, it's we locked the outcomes. We are very focused on the fee income aspect of it.

Cory Newsom: But if you look at percentage wise of the treasury increases that we're seeing, I mean, it's, we like the outcomes, we are very focused on the fee income aspect.

Joe Yanchunis: All right, gentlemen, I appreciate you taking my questions. Thanks, Joe. Thank you.

Alright, gentlemen, I appreciate you taking my questions.

Speaker Change: Thanks, Joe Thanks, Joe Thanks.

Speaker Change: Thank you there are no further questions at this time I would like to hand, the floor back over to Curtis Griffith for any closing comments.

Operator: There are no further questions at this time.

Curtis Griffith: I would like to hand the floor back over to Curtis Griffith for any closing comments. Thank you, operator. Thanks to all of you that joined us today on today's call.

Curtis Griffith: Thank you operator.

Curtis Griffith: Thanks to all of you didn't join us on today's call.

Curtis Griffith: To conclude, I am proud not only of our first quarter results, but also the financial position of South Plains, which is a testament to our talented employees whose hard work and commitment to the bank is a true key to our success. While the economic outlook is uncertain, I remain very optimistic for the future. My optimism stems from the years of hard work that we have invested in positioning Citibank to perform well through the next economic downturn. We believe the credit quality of our loan portfolio is strong, and our relationships with our customers span many years and sometimes even generations.

Curtis Griffith: To conclude I am proud not only of our first quarter results, but also the financial position of South Plains, which is a testament to our talented employees, whose hard work and commitment to the bank as a true key to our success.

Curtis Griffith: While the economic outlook is uncertain I remain very optimistic for the future my optimism stems from years of hard work that we have invested in positioning city bank performed well through the next economic downturn.

Curtis Griffith: We believe the credit quality of our loan portfolio is strong and our relationships with our customers span many years, sometimes even generations. I also believe we have the team and the capital take advantage of opportunities to further grow the bank through the cycle. We are focused on hiring experienced lenders to add to our great team at work.

Curtis Griffith: I also believe we have the team and the capital to take advantage of opportunities to further grow the bank through the cycle. We are focused on hiring experienced lenders to add to our great team and will continue to do so over the balance of the year when we find the right fit. Taken together, we believe we're in an advantageous position to succeed and to continue to deliver value to our shareholders.

Curtis Griffith: Continue to do so over the balance of the year when we found the right fit.

Curtis Griffith: And together, we believe we're in an advantageous position to succeed and to continue to deliver value to our shareholders. Thank you again for your time today.

Curtis Griffith: Thank you again for your time today.

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

Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.