Q1 2026 South Plains Financial Inc Earnings Call

April 28, 2026

Operator 3: Good afternoon, ladies and gentlemen, welcome to South Plains Financial Inc. Q1 2026 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. I would now like to turn the call over to Steven Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead.

Operator: Good afternoon, ladies and gentlemen, welcome to South Plains Financial Inc. Q1 2026 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. I would now like to turn the call over to Steven Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead.

Speaker #2: 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.

Speaker #2: 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.

Steven Crockett: Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. The related earnings press release and earnings slide deck presentation issued today are available on the SEC's website, as well as the News and Events section of our website, spfi.bank. Please refer to slide 2 of the presentation for our 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 slide 2 of the presentation for our 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.

Speaker #2: We appreciate you joining our earnings conference call. The related earnings press release and earnings slide deck presentation issued today are available on the SEC's website as well as the news and events section of our website, spfi.bank.

Speaker #2: Please refer to slide 2 of the presentation for our 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.

Speaker #2: In addition, please refer to Slide 2 of the presentation for our 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.

Speaker #2: I'm joined here today by Curtis Griffith, our Chairman and CEO, Cory Newsom, our President, and Brent Bates, Citibank's Chief Credit Officer. Curtis, let me hand it over to you.

Steven Crockett: I'm joined here today by Curtis Griffith, our Chairman and CEO, Cory Newsom, our President, and Brent Bates, City Bank's Chief Credit Officer. Curtis, let me hand it over to you.

Speaker #3: Thank you, Steve, and good afternoon. We delivered solid first quarter results, highlighted by strong profitability, continued improvement in credit quality, and disciplined balance sheet management as can be seen on slide 4.

Curtis Griffith: Thank you, Steve. Good afternoon. We delivered solid Q1 results highlighted by strong profitability, continued improvement in credit quality, and disciplined balance sheet management as can be seen on slide 4. While the market backdrop has been uncertain, we have continued to execute our strategy designed to enhance the earning power of City Bank. Our strategy remains focused on expanding our lending team across our high-growth Texas markets, while also pursuing accretive M&A. We have a meaningful organic growth opportunity as we expand our lending team across our key Texas markets. We continue to selectively add experienced lenders who fit our culture and can bring long-term customer relationships to the bank. While we remain cautious and conservative given the uncertain macroeconomic backdrop, we are excited by the opportunities that we see to further expand our team and drive sustainable organic loan growth over time.

Speaker #3: While the market backdrop has been uncertain, we have continued to execute our strategy designed to enhance the earning power of Citibank. Our strategy remains focused on expanding our lending team across our high-growth Texas markets while also pursuing accretive M&A.

Speaker #3: We have a meaningful organic growth opportunity as we expand our lending team across our key Texas markets. We continue to selectively add experienced lenders who fit our culture and can bring long-term customer relationships to the bank.

Speaker #3: While we remain cautious and conservative given the uncertain macroeconomic backdrop, we are excited by the opportunities that we see to further expand our team, and drive sustainable organic loan growth over time.

Speaker #3: Turning to our M&A strategy and the Bank of Houston, we were pleased to complete our merger on April 1st and officially welcome the BOH team to Citibank.

Curtis Griffith: Turning to our M&A strategy and the Bank of Houston, we were pleased to complete our merger on 1 April and officially welcome the BOH team to City Bank. We've spent a significant amount of time on the integration since announcing the merger in December to ensure that our new employees are welcomed into the bank and positioned for success. We continue to be impressed with the BOH team, the dedication they have to delivering strong results in the Houston market, and the similarities in our cultures. From an operational perspective, things are going according to plan. We expect the core conversion to be completed in early May and continue to see opportunities to reduce BOH's cost of funds over time. In fact, steps have already been taken to optimize the balance sheet as there has been a reduction in broker deposits and Federal Home Loan Bank borrowings starting in Q1.

Speaker #3: We've spent a significant amount of time on the integration since announcing the merger in December to ensure that our new employees are welcomed into the bank and positioned for success.

Speaker #3: We continue to be impressed with the BOH team, the dedication they have to delivering strong results in the Houston market, and the similarities in our cultures.

Speaker #3: From an operational perspective, things are going according to plan. We expect the core conversion to be completed in early May and continue to see opportunities to reduce BOH's cost of funds over time.

Speaker #3: In fact, steps have already been taken to optimize the balance sheet as there has been a reduction in broker deposits and federal home loan bank borrowings starting in Q1.

Speaker #3: Overall, we believe BOH is a good strategic fit with low execution risk, and we continue to expect the merger to be 11% accretive to our earnings in 2027 with a tangible book value earned back of less than 3 years which remains compelling.

Curtis Griffith: Overall, we believe BOH is a good strategic fit with low execution risk, and we continue to expect the merger to be 11% accretive to our earnings in 2027 with a tangible book value earn back of less than 3 years, which remains compelling. Now that the BOH acquisition is completed, we will continue to explore additional M&A opportunities. However, our approach has not changed. We remain highly disciplined and patient, and to date, we have not identified another transaction that meets our strict criteria. As we've said many times in the past, we're not interested in growth for growth's sake. Any potential partner must align with our culture, credit discipline, and community banking focus while also making strategic and financial sense for our shareholders.

Speaker #3: Now that the BOH acquisition is completed, we will continue to explore additional M&A opportunities. However, our approach has not changed. We remain highly disciplined and patient and to date we have not identified another transaction that meets our strict criteria.

Speaker #3: As we've said many times in the past, we're not interested in growth for growth's sake. Any potential partner must align with our culture, credit discipline, and community banking focus while also making strategic and financial sense for our shareholders.

Speaker #3: Turning to the market backdrop, we remain cautious over the near term as inflationary pressures appear to be resurfacing driven in part by elevated energy prices related to the ongoing conflict in the Middle East.

Curtis Griffith: Turning to the market backdrop, we remain cautious over the near term as inflationary pressures appear to be resurfacing, driven in part by elevated energy prices related to the ongoing conflict in the Middle East. These dynamics may limit the Federal Reserve's ability to further reduce interest rates and could act as a headwind to economic activity and loan growth as we move through the year. This could also limit our ability to further reduce our cost of funds. While the near-term outlook is uncertain, we continue to be positive on the longer-term potential of the Texas economy, especially compared to the broader United States. Corporations continue to move their operations and headquarters to Texas, attracted by the state's pro-business environment, favorable demographics, and ongoing population growth, which provides a constructive backdrop for economic growth and relationship-based banking.

Speaker #3: These dynamics may limit the Federal Reserve's ability to further reduce interest rates, and could act as a headwind to economic activity and loan growth as we move through the year.

Speaker #3: This could also limit our ability to further reduce our cost of funds. While the near-term outlook is uncertain, we continue to be positive on the longer-term potential of the Texas economy, especially compared to the broader United States.

Speaker #3: Corporations continue to move their operations and headquarters to Texas, attracted by the state's pro-business environment, favorable demographics, and ongoing population growth, which provides a constructive backdrop for economic growth and relationship-based banking.

Speaker #3: To conclude, we believe that we're in a strong capital position that will allow us to execute our growth strategy and benefit from the many opportunities that we have in front of us.

Curtis Griffith: To conclude, we believe that we're in a strong capital position that will allow us to execute our growth strategy and benefit from the many opportunities that we have in front of us. Given our capital position, we remain focused on both growing City Bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. To that end, our board of directors authorized a $0.17 per share quarterly dividend on April 16, which will be our 28th consecutive dividend. Now, let me turn the call over to Cory.

Speaker #3: Given our capital position, we remain focused on both growing Citibank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place.

Speaker #3: To that end, our Board of Directors authorized a $17 cent per share quarterly dividend on April 16th, which will be our 28th consecutive dividend.

Speaker #3: Now let me turn the call over to Cory.

Speaker #2: Thanks, Curtis. And hello, everyone. Starting on slide 5, our loans held for investment decreased by 41 million dollars to 3.1 billion dollars in the first quarter as compared to the linked quarter.

Cory Newsom: Thanks, Curtis, and hello, everyone. Starting on slide five, our loans held for investment decreased by $41 million to $3.1 billion in Q1 as compared to the linked quarter. The decrease was primarily due to the expected early payoff of a $30 million multifamily loan, which we discussed on our Q4 call, and $24 million of seasonal net paydowns of agricultural loans. Importantly, we experienced strong unfunded loan commitment growth during the quarter, driven in part by our new hires, which was notable. These commitments are largely in construction and will fund through the year. Our yield on loans was 6.83% in Q1 as compared to 6.79% in the linked quarter.

Speaker #2: The decrease was primarily due to the expected early payoff of a $30 million multifamily loan, which we discussed on our fourth quarter call, and 24 million dollars of seasonal net paydowns of agricultural loans.

Speaker #2: Importantly, we experienced strong unfunded loan commitment growth during the quarter driven in part by our new hires, which was notable. These commitments are largely in construction and will fund through the year.

Speaker #2: Our yield on loans was 6.83% in the first quarter as compared to 6.79% in the linked quarter. Excluding problem loan interest and fee recoveries noted on slide 5, our yield on loans has held relatively steady over the last four quarters.

Cory Newsom: Excluding problem loan interest and fee recoveries noted on slide 5, our yield on loans has held relatively steady over the last 4 quarters. While we have not experienced a material impact on our loan yields from the FOMC's most recent 25 basis point reductions in their target interest rate in September and December, we do expect our loan yields to moderate in the quarters ahead. As Steve will touch on, our goal is to maintain our margin as we grow our balance sheet in order to drive earnings growth and returns. Turning to slide 7, our loans held for investment in our major metropolitan markets of Dallas, Houston, and El Paso declined by $23 million to $1 billion as compared to the linked quarter, largely due to the expected early payoff of the multi-family loan that I just mentioned.

Speaker #2: While we have not experienced a material impact on our loan yields from the FOMC's most recent 25 basis point reductions in their target interest rate in September and December, we do expect our loan yields to moderate in the quarters ahead.

Speaker #2: As Steve will touch on, our goal is to maintain our margin as we grow our balance sheet in order to drive earnings growth and returns.

Speaker #2: Turning to slide 7, our loans held for investment and our major metropolitan markets of Dallas, Houston, and El Paso declined by 23 million to 1 billion dollars as compared to the linked quarter largely due to the expected early payoff of the multifamily loan that I just mentioned.

Speaker #2: Looking ahead, we also expect another early payoff of approximately $34 million multifamily loan as some large payoffs will continue to be a headwind to loan growth.

Cory Newsom: Looking ahead, we also expect another early payoff of approximately $34 million multifamily loan as some large payoffs will continue to be a headwind to loan growth. Importantly, our loan pipeline remains healthy, and we remain confident in delivering our loan growth guidance for the full year, albeit towards the lower end of our mid to high single-digit range. We will also continue to execute our organic growth strategy as we look for lenders who fit our culture and can bring deep local market knowledge and long-term customer relationships to the bank. We continue to benefit from the consolidation that the Texas banking industry continues to undergo as large regional and out-of-state institutions continue to acquire Texas-based franchises. Additionally, South Plains remains committed to being a Texas-focused community bank with experienced local bankers and power to serve their markets.

Speaker #2: Importantly, our loan pipeline remains healthy and we remain confident in delivering our loan growth guidance for the full year albeit towards the lower end of our mid to high single-digit range.

Speaker #2: We will also continue to execute our organic growth strategy as we look for lenders who fit our culture and can bring deep local market knowledge and long-term customer relationships to the bank.

Speaker #2: We continue to benefit from the consolidation that the Texas banking industry continues to undergo as large regional and out-of-state institutions continue to acquire Texas-based franchises.

Speaker #2: Additionally, South Plains remains committed to being a Texas-focused community bank with experienced local bankers and the power to serve their markets. As competitors integrate acquisitions or streamline operations, we continue to attract both customers and talented bankers, reflecting the strength of our culture and conservative operating philosophy.

Cory Newsom: As competitors integrate acquisitions or streamline operations, we continue to attract both customers and talented bankers, reflecting the strength of our culture and conservative operating philosophy. Importantly, South Plains occupies a unique position in our market, offering the product breadth and capabilities that smaller banks cannot match while delivering the personalized service larger banks often struggle to provide. We believe this balance provides a durable competitive advantage as we move through 2026 and beyond. Since launching our recent organic growth strategy, we have completed about 50% of our expected hiring occurring across our Dallas, Houston, and Midland markets. I continue to be pleased with the quality of bankers that we are speaking to and remain optimistic on our ability to recruit exceptional talent to the bank through the balance of the year now that we have cleared the Q1, which is typically a slower time for hiring.

Speaker #2: Importantly, South Plains occupies a unique position in our market offering the product breadth and capabilities that smaller banks cannot match while delivering the personalized service larger banks often struggle to provide.

Speaker #2: We believe this balance provides a durable competitive advantage as we move through 2026 and beyond. Since launching our recent organic growth strategy, we have completed about 50% of our expected hiring occurring across our Dallas, Houston, and Midland markets.

Speaker #2: I continue to be pleased with the quality of bankers that we are speaking to and remain optimistic on our ability to recruit exceptional talent to the bank through the balance of the year now that we have cleared the first quarter, which is typically a slower time for hiring.

Speaker #2: Keeping ahead to slide 11, we've generated 11.3 million dollars of non-interest income in the first quarter compared to 10.9 million dollars in the linked quarter.

Cory Newsom: Skipping ahead to slide 11, we generated $11.3 billion of non-interest income in Q1 compared to $10.9 million in the linked quarter. The increase from Q4 2025 was primarily due to an increase of $1.5 million in mortgage banking revenues, partially offset by a loss of approximately $800,000 in an SBIC investment. Mortgage revenues grew mainly as a result of the quarter-over-quarter change of $915,000 in the MSR fair value adjustment, as can be seen on slide 12. Overall, we continue to be pleased with how our mortgage business is performing in this low transaction and interest rate environment, and we believe we are well positioned for the eventual upturn in volumes.

Speaker #2: The increase from the fourth quarter of 2025 was primarily due to an increase of 1.5 million in mortgage banking revenues partially offset by a loss of approximately $800,000 in an SBIC investment.

Speaker #2: Mortgage revenues grew mainly as a result of the quarter-over-quarter change of $915,000 in the MSR fair value adjustment as can be seen on slide 12.

Speaker #2: Overall, we continue to be pleased with how our mortgage business has performed in this low transaction and interest rate environment, and we believe we are well positioned for the eventual upturn in volumes.

Speaker #2: For the first quarter, non-interest income was 21% of bank revenues, essentially flat with the linked quarter. Continuing to grow our non-interest income remains a focus of our team.

Cory Newsom: For Q1, non-interest income was 21% of bank revenues, essentially flat with the linked quarter. Continuing to grow our non-interest income remains a focus of our team. I would now like to turn the call over to Steve.

Speaker #2: I would now like to turn the call over to Steve.

Speaker #3: Thanks, Cory. For the first quarter, diluted earnings per share were $0.85 compared to $0.90 from the linked quarter. This decrease was primarily due to acquisition-related expenses, which I'll touch on in a moment, and the SBIC investment loss.

Steven Crockett: Thanks, Corey. For Q1, diluted earnings per share were $0.85 compared to $0.90 from the linked quarter. This decrease was primarily due to acquisition related expenses, which I'll touch on in a moment, and the SBIC investment loss, partially offset by a lower provision for credit losses. Starting on slide 14, net interest income was $43 million for Q1, in line with Q4's result. Our net interest margin on a tax equivalent basis was 4.04% in Q1 as compared to 4% in the linked quarter. Our Q1 NIM was positively impacted by 5 basis points due to $545 thousand of non-accrual loan interest recovery.

Steven Crockett: Thanks, Cory. For Q1, diluted earnings per share were $0.85 compared to $0.90 from the linked quarter. This decrease was primarily due to acquisition related expenses, which I'll touch on in a moment, and the SBIC investment loss, partially offset by a lower provision for credit losses. Starting on slide 14, net interest income was $43 million for Q1, in line with Q4's result. Our net interest margin on a tax equivalent basis was 4.04% in Q1 as compared to 4% in the linked quarter. Our Q1 NIM was positively impacted by 5 basis points due to $545 thousand of non-accrual loan interest recovery.

Speaker #3: Partially offset by a lower provision for credit losses. Starting on slide 14, net interest income was $43 million for the first quarter, in line with the fourth quarter's result.

Speaker #3: Our net interest margin on a tax equivalent basis was 4.04% in the first quarter as compared to 4% in the linked quarter. Our first quarter NIM was positively impacted by 5 basis points due to $545,000 of non-accrual loan interest recovery.

Speaker #3: Excluding the problem loan interest and fee recoveries noted on this slide, we have delivered steady NIM expansion through 2025 in which has started to moderate.

Steven Crockett: Excluding the problem loan interest and fee recoveries noted on this slide, we have delivered steady NIM expansion through 2025 and which has started to moderate. As a result, our goal is to maintain our profitability at current levels while growing our balance sheet, which will drive earnings and returns. As outlined on slide 15, deposits increased by $154 million or 4% from the linked quarter to $4.03 billion. During the quarter, we experienced strong organic growth across retail, commercial, and public fund deposits. As in prior years, we expect a portion of the public funds to flow back out of the bank and for other depositors to see outflows in the Q2 as customers make their annual tax payments.

Speaker #3: As a result, our goal is to maintain our profitability at current levels while growing our balance sheet. Which will drive earnings and returns. As outlined on slide 15, deposits increased by 154 million dollars or 4% from the linked quarter to 4.03 billion dollars.

Speaker #3: During the quarter, we experienced strong organic growth across retail, commercial, and public fund deposits. As in prior years, we expect a portion of the public funds to flow back out of the bank and for other depositors to see outflows in the second quarter as customers make their annual tax payments.

Speaker #3: As a result, we would expect deposit growth to be flat to down in the second quarter before returning to growth in the second half of 2026.

Steven Crockett: As a result, we would expect deposit growth to be flat to down in Q2 before returning to growth in H2 2026 before you factor in acquisition deposits. non-interest-bearing deposits modestly increased by $11 million in Q1 and represents 25.7% of total deposits at the end of that quarter, as compared to 26.4% at the end of the linked quarter. Our cost of deposits decreased by 4 basis points to 1.97% compared to the linked quarter, as we have continued to reprice our deposit base lower following the FOMC's most recent 25 basis point reduction in December.

Speaker #3: Before you factor in acquisition deposits. Non-interest-bearing deposits modestly increased by 11 million dollars in the first quarter and represents 25.7% of total deposits at the end of that quarter.

Speaker #3: As compared to 26.4% at the end of the linked quarter. Our cost of deposits decreased by 4 basis points to 1.97% compared to the linked quarter as we have continued to reprice our deposit base lower following the FOMC's most recent 25 basis point reduction in December.

Speaker #3: Looking forward, we expect our cost of funds to hold steady in the second quarter absent further rate reductions by the Fed. And before we factor in the cost of the acquisition deposits.

Steven Crockett: Looking forward, we expect our cost of funds to hold steady in Q2, absent further rate reductions by the Fed and before we factor in the cost of the acquisition deposits. Turning to slide 17, our ratio of allowance for credit losses to total loans held for investment was 1.44% at the end of Q1, stable from the prior quarter end. We recorded a $260,000 provision for credit losses, which all related to unfunded loan commitments in Q1, which compares to $1.8 million in the linked quarter. The decrease in provision expense was largely attributable to the decrease in loan balances, combined with the decrease of $4.8 million in non-performing loans and a $460,000 decrease in loan net charge-offs.

Speaker #3: Turning to slide 17, a ratio of allowance for credit losses to total loans held for investment was 1.44% at the end of the first quarter, stable from the prior quarter end.

Speaker #3: We recorded a 260,000 dollar provision for credit losses which all related to unfunded loan commitments. In the first quarter, which compares to 1.8 million dollars in the linked quarter.

Speaker #3: The decrease in provisioned expense was largely attributable to the decrease in loan balances, combined with the decrease of $4.8 million in non-performing loans and a $460,000 decrease in loan net charge-offs.

Speaker #3: Skipping ahead to slide 19, our non-interest expense increased 2.5 million dollars to 35.5 million dollars in the first quarter as compared to the linked quarter.

Steven Crockett: Skipping ahead to slide 19, our non-interest expense increased $2.5 million to $35.5 million in Q1 as compared to the linked quarter. We had a $1.8 million increase in personnel expenses, mainly due to annual salary adjustments and higher incentive-based compensation. We also had a $542,000 increase in professional service expenses. There was approximately one and a half million dollars in acquisition related expenses in Q1 of 2026, of which $1.2 million was for professional services as compared to approximately $500,000 in the Q4 of 2025, all of which was for professional services. I'll touch on our expectations for Q2 in a moment.

Speaker #3: We had a 1.8 million dollar increase in personnel expenses mainly due to annual salary adjustments and higher incentive-based compensation. We also had a 542,000 dollar increase in professional service expenses.

Speaker #3: There was approximately one and a half million dollars in acquisition-related expenses in the first quarter of 2026. Of which 1.2 million dollars was for professional services.

Speaker #3: As compared to approximately 500,000 dollars in the fourth quarter of 2025, all of which was for professional services. I'll touch on our expectations for the second quarter in a moment.

Speaker #3: Moving to slide 21, we remain well capitalized with tangible common equity to tangible assets of 10.48% at the end of the first quarter, representing a modest decline from the end of the fourth quarter.

Steven Crockett: Moving to slide 21, we remain well capitalized with tangible common equity to tangible assets of 10.48% at the end of Q1, representing a modest decline from the end of Q4. Tangible book value per share increased to $29.65 as of 31 March 2026, compared to $29.05 as of 31 December 2025. The increase was primarily driven by $11.8 million of net income after dividends paid. Turning to slide 23, we've provided high-level financials for BOH, as well as spot metrics for key financial metrics for the pro forma combined bank at 31 March 2026 to help you with your modeling of South Plains looking to Q2 2026.

Speaker #3: Tangible book value per share increased to 29 dollars and 65 cents as of March 31st, 2026, compared to 29 dollars and 5 cents as of December 31st, 2025.

Speaker #3: The increase was primarily driven by $11.8 million of net income after dividends paid. Turning to slide 23, we provided high-level financials for BOH, as well as spot metrics for key financial metrics for the pro forma combined bank at March 31, 2026.

Speaker #3: To help you with your modeling of South Plains looking to the second quarter of 2026. At or as of the first quarter ended March 31st, 2026, consolidated BOH had approximately 632 million dollars of loans with a portfolio loan yield of 6.94% and 596 million dollars of deposits.

Steven Crockett: At or as of Q1 ended 31 March 2026, consolidated BOH had approximately $632 million of loans with a portfolio loan yield of 6.94% and $596 million of deposits, where non-interest-bearing deposits represented 16% of that total, and interest bearing deposits had a cost of 342 basis points. BOH had $15 million in borrowings, their NIM was 3.9%. BOH had $226,000 of non-interest income, their non-interest expense was $4 million for Q1, excluding transaction related expenses. Pro forma for the deal for Q1, the combined bank's cost of deposits was 210 basis points, the NIM was 4.02%. This concludes our prepared remarks.

Speaker #3: Where non-interest-bearing deposits represented 16% of that total. And interest-bearing deposits had a cost of 342 basis points. BOH had 15 million dollars in borrowings and their NIM was 3.9%.

Speaker #3: BOH had 226,000 dollars of non-interest income and their non-interest expense was 4 million dollars for the first quarter. Excluding transaction-related expenses. Pro forma for the deal for the first quarter, the combined bank's cost of deposits was 210 basis points.

Speaker #3: And the NIM was 4.02%. This concludes our prepared remarks. I will now turn the call back to the operator to open the line for any questions.

Steven Crockett: I will now turn the call back to the operator to open the line for any questions. Operator?

Speaker #3: Operator?

Speaker #2: Thank you. If you would 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.

Operator 3: Thank you. If you would like to ask a question, please press star one on your telephone keypad. Our first question is from Woody Lay with KBW. Please proceed.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. Our first question is from Woody Lay with KBW. Please proceed.

Speaker #2: You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #2: Our first question is from Woody Lay with KBW. Please proceed.

Speaker #3: Hey guys, thanks for taking my questions. I wanted to say, the pro forma slide deck—slide 23—is super helpful. Thanks for providing that.

Woody Lay: Hey, guys. Thanks for taking my questions.

Steven Crockett: Hi, Woody.

Woody Lay: Hey. The pro forma slide deck, you know, slide 23 is super helpful. Thanks for providing that. You mentioned that you went through some balance sheet repositioning of BOH and it looks like the balance sheet shrank a little bit. Could you just sort of walk through the reposition went through? It sounds like despite the smaller balance sheet, it doesn't impact the EPS accretion outlook.

Speaker #3: You mentioned that, you went through some balance sheet repositioning of, of BOH and, and it looks like the balance sheet shrank a little bit.

Speaker #3: Could you just sort of walk through the repositioning you went through? And it sounds like, despite the smaller balance sheet, it doesn't impact the EPS accretion outlook.

Speaker #4: Yeah. Woody, this is Steve. I would just say it there were not a lot of big changes during during the quarter for them, but it, it did start changing.

Steven Crockett: Yeah. Woody Lay, this is Steven Crockett. I would just say there were not a lot of big changes during the quarter for them, but it did start changing as they moved on. Some of the, you know, they were able to tighten up a little bit on liquidity from where they've been knowing where the deal was headed. Some of the Federal Home Loan Bank borrowings had dropped from where they had been. Some of the brokered deposits did not get redone. Little bit of back and forth on some of that with us working with them. That's started.

Speaker #4: As they moved on, some of the, you know, they were able to tighten up a little bit on liquidity from where they had been, knowing where the deal was headed.

Speaker #4: Some of the Federal Home Loan Bank borrowings had dropped from where they had been. Some of the brokered, time brokered deposits did not get, did not get re-redone.

Speaker #4: So, little, little bit of back and forth on some of that with, us working with them. so that, that's, that's started. We'll, we'll continue, looking to, to optimize the balance sheet and seeing what, seeing what, borrowings, you know, the borrowings, you know, would, would be pretty easy to when, when the when those come up, they're all they're, they're all short term.

Steven Crockett: We'll continue looking to optimize the balance sheet and seeing what borrowings. You know, the borrowings would be pretty easy to when those come up. They're all short term on that. We'll continue to look at the non-core funding where we can and pare that back. Again, overall, like you said, there's not a huge impact to the net interest margin. Their net interest margin for the whole quarter was 3.90. I mean, as you got closer to the end of the quarter, if you were just looking at it for the month of March or toward the end there, it would have been a little bit higher than that.

Speaker #4: On that, we'll continue to look at look at the non-core, funding, where we can and, and, and pair that back. So but again, overall, like you said, there's, there's not a there's not a huge impact, to the to the net interest margin.

Speaker #4: it's their net interest margin for the whole quarter was 3.90. I mean, as you got closer to the end, end of the quarter, if you were just looking at it for the month of March or, or the end of or the end there, it, it, it would have been a little bit higher than that.

Speaker #3: We-we've just been I mean, Steve and I've had tons of conversations about this and as he always likes to remind me, this is a bit more of a marathon than a sprint.

Cory Newsom: I mean, Steve and I have had tons of conversations about this. As he always likes to remind me, this is a bit more of a marathon than a sprint. We're trying to be very, very thoughtful on how we manage the balance sheet and knowing there may even be things on our balance sheet that we can eliminate as a result of stuff that's said here with theirs that they bring across. We just think it blends nicely with what we've done, what we have. There's definitely room for improvement as we move forward.

Speaker #3: We're trying to be very, very thoughtful on how we manage the balance sheet. And knowing that maybe there may even be things on our balance sheet that we can eliminate as a result of stuff that, that sat here with ours that they bring across.

Speaker #3: We just think it's a we just think it blends nicely with what we've done, what we have. But there's definitely room for improvement as we move forward.

Speaker #5: Yeah. that's, that's helpful color. And, and, you know, as you just mentioned, you, you think they're could be room for improvement, especially, maybe repricing some of the higher costing deposits.

Woody Lay: Yeah. That's helpful color. You know, as you just mentioned, you think there could be room for improvement, especially, maybe repricing some of the higher costing deposits. How realistic of an opportunity is that in the near term? Do you think that could, you know, lead to some NIM expansion going forward?

Speaker #5: h-how realistic of a of an opportunity is that in the near term? And, and do you think that could, you know, lead to some NIM expansion going forward?

Speaker #4: I mean, the opportunity is real. It's just, again, trying to balance the overall liquidity position we're at, what loan expectation loan growth expectations are, all of that.

Steven Crockett: I mean, the opportunity is real. It's just, again, trying to balance the overall liquidity position we're at, what loan growth expectations are, all of that. You know, just finding who, you know, we don't want to run off. We're not looking to lose customers. We're looking at the non-core type stuff and, you know, the stuff that's easier, we will certainly do, but it's just gonna be part of the overall plan. We wanna do the best that we can and improve it if we can. Also knowing, as we said, it's not about what our number looks like next quarter. It's about where we end up the year and next year and just trying to do it in a thoughtful manner.

Speaker #4: And, you know, just finding which who, you know, we don't want to run off we're not looking to, to, to lose customers. We're looking at the non-core type stuff.

Speaker #4: And, you know, the stuff that's easier, we, we will certainly do. But it's just going to be part of the overall the overall plan.

Speaker #4: I, I, I we want to we want to do the best that we can and, and, and, improve, improve it if we can. But also knowing, as we said, it's, it's not about what our number looks like next quarter.

Speaker #4: It's about where we end up the year and next year. And, just trying to do it in a in a thoughtful manner. But, there's, there's definitely some, you know, some non-core sources that we can, that we can, lo-look at doing something with.

Steven Crockett: There's definitely some, you know, some non-core sources that we can that we can look at doing something with.

Speaker #3: But Woody, the other thing that you, you got to kind of keep in mind, they do a good job of pricing the loans on the other side.

Cory Newsom: Woody, the other thing that you got to kind of keep in mind, they do a good job at pricing the loans on the other side. What we're really trying to factor in is being prepared for the kind of demand that they've kind of had to keep tamp down just a little bit getting up to this because, I mean, look, there's no question the real clarity kept getting tighter and tighter, and it made it a bit of a challenge on some of the funding opportunities. That's one of the things that we think we bring to the table and how we can go help them. We can be very beneficial with the purchase of this bank that we bought.

Speaker #3: And what we're really trying to factor in is being prepared for the kind of demand that they've kind of had to keep tamped down just a little bit, getting up to this because, I mean, look, there's no question.

Speaker #3: The liquidity kept getting tighter and tighter. And it, it made it a bit of a challenge on some of the funding opportunities. That's one of the things that we think we bring to the table and how we can go help them, where we can be very beneficial with the purchase of this, of this bank that we bought.

Speaker #3: What we have not wanted to do was go buy a bank and then screw it up from all the benefits that we thought we could bring across with it.

Cory Newsom: What we have not wanted to do was go buy a bank and then screw it up from all the benefits that we thought we could bring across with it. There is no question that we think there's room to improve on the deposit cost. I can tell you unequivocally, our ultimate focus is try to look at what our core NIM was before this acquisition and make sure that we do not diminish that in any form or fashion, if we can help it.

Speaker #3: So, there is no question that we think there's room to improve on the deposit cost. But I can tell you unequivocally, our ultimate focus is trying to look at what our core NIM was before this acquisition and make sure that we do not diminish that in any form or fashion, if we can help it.

Curtis Griffith: Woody, this is Curtis. Just tell you that in our last ALCO meeting, they already put together the list of some of the broker deposits and other non-core funding sources, and some of those are long maturity as well. Essentially, as all of the higher cost stuff hits maturity and payoff dates, we're fortunate right now that we've got a lot of on-hand liquidity, and we want to grow core deposits in the Houston market. Now, be very clear about that. As some of these higher cost things that are not core hit the dates we can, we'll just pay them off. Yes, we'll get some benefit, but don't lose sight of the fact that overall, this is still a fairly small piece of our overall balance sheet.

Speaker #2: Woody, this is Curtis. And just tell you that our last ALCO meeting, they'd already put together the list of the some of the brokered deposits and other, non-core funding sources.

Speaker #2: And some of those are non-maturity as well. And, essentially, as all of the higher cost stuff hits maturity and payoff dates, we're fortunate right now that we've got a lot of on-hand liquidity and we want to grow core deposits in the Houston market.

Speaker #2: Now, be very clear about that. But, as some of these higher cost things that are not core hit, hit the dates we can, we'll just pay them off.

Speaker #2: So yes, you, you we'll get some benefit. But don't lose sight of the fact that overall, this is still a fairly small piece of our overall balance sheet.

Speaker #2: So, it's not going to be a radical improvement in overall deposit cost for us. But if you look at it on a BOH standalone basis, of what they were formerly, yes, we can make a pretty significant improvement in that.

Curtis Griffith: It's not gonna be a radical improvement in overall deposit costs for us. If you look at it on a BOH standalone basis of what they were formerly, yes, we can make a pretty significant improvement in that.

Speaker #5: I, I appreciate on all the color. There. Maybe just the last for me, sticking on the NIM and looking at your sort of core loan yields for standalone South for South Plains.

Woody Lay: I appreciate all the color there. Maybe just last for me, sticking on the NIM and looking at your sort of core loan yields for standalone South Plains. You know, if I adjust for the interest recovery, it still looks like loan yields were up quarter over quarter. Just was curious on the dynamic driving some of that loan yield expansion.

Woody Lay: I appreciate all the color there. Maybe just last for me, sticking on the NIM and looking at your sort of core loan yields for standalone South Plains. You know, if I adjust for the interest recovery, it still looks like loan yields were up quarter-over-quarter. Just was curious on the dynamic driving some of that loan yield expansion.

Speaker #5: You know, if I adjust for the interest recovery, it still looks like loan yields were up quarter over quarter. I was just curious on the dynamic driving some of that loan yield expansion.

Speaker #4: Yeah. I'll, I'll start and then I'll let Brent, Brent jump in. I mean, obviously, we, we have seen, you know, some of the loans that have repriced down with, with what the Fed did.

Steven Crockett: I'll start and then I'll let Brent jump in. I mean, obviously we have seen, you know, some of the loans that have repriced down with what the Feds did in Q4. You know, again, we still have continued to have loans that have been on the lower part that, you know, the fixed rate stuff from three to five years ago that is continuing to help mitigate some of that. That's been beneficial to us.

Speaker #4: And in the fourth, fourth quarter, but, you know, again, we still have we still have continued to have loans that, that have been in the on the lower part that, you know, the fixed rate stuff from three to five years ago that will that has continued to help mitigate, some of that.

Speaker #4: So that's, that's been that's been beneficial to us.

Speaker #2: Yeah. And, Woody, this is Brent. A little bit of that is the mix inside the portfolio too. Some of those, some loan types are, are yielding better than others.

Brent Bates: Yeah, Woody, this is Brent. A little bit of that is the mix inside the portfolio too. Some of those some loan types are yielding better than others and that mix does kind of influence that. I say overall yields are holding pretty well.

Speaker #2: And, and that mix does kind of influence that. But I, I say overall yields are holding pretty well.

Woody Lay: Got it. All right. Sorry, go ahead.

Speaker #3: But, Woody, I. And just, Woody, just go back on both sides of the balance sheet. Because we've, as we've said on every call that we do, we're still using exception-based pricing all the way through.

Cory Newsom: Woody, just go back on both sides of the balance sheet. As we've said on every call that we do, we're still using exception-based pricing all the way through. I mean, our first and foremost is to get all you can get on the loan side. we're still not gonna. I mean, there are some opportunities out there that if we can be as competitive as we need to be at the same time, we're going to do that if we think the credit warrants what we need to do. Like I said, we are very focused on this, on how this comes together, but really looking at the NIM more than anything.

Speaker #3: And I mean, our, our first and foremost is to get all you can get. On the loan side. But we're still not going to I mean, there's some opportunities out there that if we can be as competitive as we need to be at the same time, and we're going to do that, if we think the credit warrants what we need to do.

Speaker #3: So like I said, it's, we're, we are very focused on this, on how this comes together. But really looking at the NIM more than anything.

Speaker #5: Yeah. All right. Well, I appreciate y'all taking all my questions.

Woody Lay: Yeah. All right. Well, I appreciate y'all taking all my questions.

Speaker #3: Always.

Cory Newsom: Always.

Speaker #4: Thank you.

Curtis Griffith: Thank you.

Speaker #1: Our next question is from Brett Rabbiton with StoneX. Please proceed.

Operator 3: Our next question is from Brett Rabatin with StoneX. Please proceed.

Operator: Our next question is from Brett Rabatin with StoneX. Please proceed.

Speaker #5: Hey, good afternoon, everyone. I wanted to wanted to just talk about the, the loan pipeline and this, you know, you've, you've added some more lenders and, and you're going to be over $5 billion bank here.

Brett Rabatin: Hey, good afternoon, everyone. wanted to talk about the loan pipeline and this, you know, you've added some more lenders and you're gonna be over $5 billion dollar bank here in Q2. Just wanted to see, you know, are any of these new lenders that you're adding in what you call specialized lines of business? Is that something that you guys are thinking about maybe as you get a little bigger, doing some things that might be a little more specialized as opposed to the traditional community banking subset?

Speaker #5: in 2Q. And just wanted to see, you know, are, are any of these new lenders that you're adding, and what you'd call specialized lines of business?

Speaker #5: And is that something that you guys are thinking about? Maybe as you get a little bigger, doing some things that might be a little more specialized, as opposed to the traditional community banking subset?

Speaker #3: Brett, let me go first. And I want to be very, very clear about this. We are of all the lenders we've hired, there's not a single one that we've hired that's going to put us into something that we don't think we have good expertise in doing or gets us out of the out of the fairway that we like to stay in.

Cory Newsom: Brett, let me go first. I wanna be very, very clear about this. We are, of all the lenders we've hired, there's not a single one that we've hired that's gonna put us into something that we don't think we have good expertise in doing or gets us out of the, out of the fairway that we like to stay in. I'm, there's no, we're not getting into anything that's specialized that could ever, I think, lead to some issues. If you wanna talk about the quality of these lenders, very, very good. They blend nicely with the quality of the team that we already had in place. Yeah, we're, the thing that we like is it's bringing us opportunities that, to have new relationships that we would not have had we not done these hires that have come along.

Speaker #3: So I'm—there's, so no, we're not getting into anything that specialized that could ever, I think, lead to some issues. Now, if you want to talk about the quality of these lenders—very, very good.

Speaker #3: And they blend nicely with the quality of the team that we already had in place. But yeah, we're the thing that we like is it's, it's bringing us opportunities that to have new relationships that we would not have had had we not done these, these hires that, that have come along.

Speaker #3: But these are I mean, we're very, very fortunate with the ones that we've done. But please know we're not getting outside of the of our skis by any stretch.

Cory Newsom: These are, I mean, we're very, very fortunate with the ones that we've done. Please know, we're not getting outside of our skis by any stretch.

Speaker #5: Okay. That's helpful. and then just, just back on the cost of interfering funds for Bank of Houston, you know, I, I was looking at the regulatory data.

Brett Rabatin: Okay, that's helpful. Back on the cost of interest-bearing funds for Bank of Houston, you know, I was looking at the regulatory data and saw that the cost was down, like 12 basis points linked quarter to 346. That's obviously, I think one of the key opportunities for the margin from here. You know, just competitively in Houston, you know, what are you guys seeing on rate competition on deposits? You know, how much can you lower that over the coming quarters?

Speaker #5: And saw that the cost was down, like 12 basis points late quarter to 346. and that, that's obviously, I, I think one of the key opportunities for the margin.

Speaker #5: From here, you know, just competitively in Houston, you know, what are you guys seeing on, rate competition on deposits? And, you know, how much can you lower that over the coming quarters?

Speaker #3: Well, I think it's I think it's very, very competitive. One thing that Bank of Houston adds nicely to the to the other Houston business that we have, they do a better job with deposit deposit relationships than we've been able to do on our own.

Cory Newsom: Yeah. I think it's very, very competitive. One thing that Bank of Houston adds nicely to the other Houston business that we have, they do a better job with deposit relationships than we've been able to do on our own, and that's okay. I think the fact that we can manage the liquidity, that they're not facing the same constraints they've had in the past, I think we have the ability to improve the cost of funds that are actually there. I mean, we do see the benefits that are gonna come with this. There's definitely room to improve the cost of funding in that portion of the portfolio.

Speaker #3: And that's okay, I think. But I think the fact that we can manage the liquidity—that they aren't, they're not facing the same constraints they've had in the past—I think we have the ability to improve the cost of funds that are actually there.

Speaker #3: So I mean, we do we do see the, the benefits that are going to come with this. There's definitely room to improve the cost of funding in that in that portion of the portfolio.

Speaker #5: Okay. And then maybe just lastly for me on, on mortgage banking, you know, you know, obviously a little noise with the, the servicing asset.

Operator 2: Okay. Then maybe just lastly for me on mortgage banking, you know, obviously a little noise with the servicing asset, but, you know, better than I would have expected, given seasonality in Q1 and some higher interest rates. You know, I know mortgage is tough to predict, but maybe, Brent, any thoughts on what you see, you know, mortgage from here and, just it's obviously been a business you like, but it was down last year. You know, can it get back to 2024 levels or better? Just any thoughts on production and gain on sale margins?

Brett Rabatin: Okay. Then maybe just lastly for me on mortgage banking, you know, obviously a little noise with the servicing asset, but, you know, better than I would have expected, given seasonality in Q1 and some higher interest rates. You know, I know mortgage is tough to predict, but maybe, Brent, any thoughts on what you see, you know, mortgage from here and, just it's obviously been a business you like, but it was down last year. You know, can it get back to 2024 levels or better? Just any thoughts on production and gain on sale margins?

Speaker #5: But, you know, better than I would have expected. given seasonality in 1Q and some higher interest rates. You know, and, and I know mortgage is tough to predict, but maybe Brent, any, thoughts on what you see, you know, mortgage from here and, and just it's, it's, it's obviously been a business you like.

Speaker #5: But it was down last year. You know, can it get back to '24 levels or better, or just any thoughts on production and gain on sale margins?

Speaker #4: Yeah. This is Brent. I mean, look, mortgage is, is good business. We like it. but, you know, right now, it's, it's kind of the same song.

Brent Bates: Yeah, this is Brent. I mean, look, mortgage is good business. We like it. You know, right now it's kind of the same song, Q2 or Q3, Q4, Q1, quarter over quarter. We're doing well. We're not losing money at it. We're making money. It's not the days you're talking about as robust. I think rates probably have to drop quite a bit to make a meaningful difference there.

Brent Bates: Yeah, this is Brent. I mean, look, mortgage is good business. We like it. You know, right now it's kind of the same song, Q2 or Q3, Q4, Q1, quarter-over quarter. We're doing well. We're not losing money at it. We're making money. It's not the days you're talking about as robust. I think rates probably have to drop quite a bit to make a meaningful difference there.

Speaker #4: second or third, fourth, first. Quarter, quarter over quarter. we're, we're doing well. We're, we're not losing money at it. We're making money. But it's not it's not the days you're talking about.

Speaker #4: It's robust, I think. Rates probably have to drop quite a bit to make a meaningful difference there.

Speaker #3: So Brett, here's the thing you got to we got to look at mortgage. Do we think we're setting the world on fire? Absolutely not.

Cory Newsom: Brett, here's the thing we gotta look at mortgage. Do we think we're setting the world on fire? Absolutely not. Here's the thing that we're proud of, and I know that there's others that are being successful like we are, and when I talk about success, we've kept the nucleus of this business together, and we're not losing any money. That is what we've been very focused on. We're also very focused on hiring in this portion of the industry as well. We're trying to be very thoughtful about how we go about that. We are trying to advance the ball with the hiring aspect of that.

Speaker #3: Here's the thing that we're proud of, and I—I know that there are others that have been successful like we are. And when I talk about success, we've kept the nucleus of this business together, and we're not losing any money.

Speaker #3: That is why we've been very, very focused on it. We're also very focused on hiring in this portion of the industry as well. But we're trying to be very thoughtful about how we go about that.

Speaker #3: We are we are trying to, advance the ball with the hiring aspect of that. But more than anything, what we look at on the mortgage is that we can offer we can offer this service to our clients without referring them to a competitor.

Cory Newsom: More than anything, what we look at on the mortgages that we can offer, we can offer this service to our clients without referring them to a competitor and be able to turn the spigot back on when rates improve and the demand comes back like it should. I don't know that if you sit here and look over the last three or four years, if we'd sat here been losing money every quarter on this, I don't know that we'd still be doing it. We know how to run this and keep it in the black and keep it very efficient. I think our guys have done a very, very good job with it, and we're very proud to be in this business because it's something that we want to be able to offer our clients.

Speaker #3: And, and be able to turn the spigot back on when rates improve and the demand comes back like it should. I don't know that if you sat here and looked over the last three or four years, if we'd sat here and been losing money every quarter on this, I don't know that we'd still be doing it.

Speaker #3: But we know how we know how to run this and keep it from keep it in the black and keep it very efficient. And I think our guys have done a very, very good job with it.

Speaker #3: And we're very proud to be in this business, because it's something that we want to be able to offer our clients.

Speaker #5: Okay. Great. Appreciate all the caller, guys.

Brett Rabatin: Okay, great. Appreciate all the color, guys.

Speaker #3: Thanks, Brent.

Cory Newsom: Thanks, Brett.

Speaker #2: Thanks, Brent.

Speaker #1: Our next question is from Steven Scoutland with Piper Sandler. Please proceed.

Operator 3: Our next question is from Stephen Scouten with Piper Sandler. Please proceed.

Operator: Our next question is from Stephen Scouten with Piper Sandler. Please proceed.

Speaker #6: Hey. Good evening, everyone. I wanted to just follow back around on kind of the loan growth commentary, if I could. I think as you said, Cory, you had you guys had, had talked about the multifamily payoff last quarter.

Stephen Scouten: Hey, good evening, everyone. I wanted to just follow back around on kind of the loan growth commentary, if I could. I think as you said, Cory, you guys had talked about the multifamily payoff last quarter. Just kind of wondering if the incremental multi or payoff that you spoke of, the $30 million plus was already anticipated in your guide, or kind of, if not, what changed in terms of loan growth demand or dynamics overall?

Speaker #6: Just kind of wondering if the incremental multi or payoff that you spoke of, the $30 million plus, was already anticipated in your guide?

Speaker #6: Or kind of, if not, what—what changed in terms of loan growth, demand, or dynamics overall?

Speaker #3: I, I don't think there's anything that we're seeing like that that wasn't just kind of in the normal course of business. A lot of these have kind of just run their cycle of life.

Cory Newsom: I don't think there's anything that we're seeing like that that wasn't just kind of in the normal course of business. A lot of these have kind of just run their cycle of life. I mean, from the time that we help them go out there and finance them, whether they're gonna try to get them stabilized, with whatever. We've never been in a position that we're the long-term holder of some of these multi-families in most of these situations. Brent, I mean, am I describing that correctly?

Speaker #3: I mean, from the time that we helped them go out there and finance them, whether they're going to try to get them stabilized, what with whatever.

Speaker #3: We've never been in a position where we're the long-term holder of some of these multifamilies in most of these situations. Brianna, I mean, am I describing that correctly?

Speaker #3: I mean.

Speaker #2: Yeah. Steven, that, that we anticipated this. This is what we talked about in the fourth quarter. It was kind of baked in. And, you know, we think there's probably maybe one more, that, that is, stabilized and, you know, these are these are credits that are looking for long-term fixed-rate financing that we're just not going to do.

Brent Bates: Yeah, Stephen.

Curtis Griffith: We anticipated this. This is what we talked about in Q4. It was kind of baked in, and, you know, we think there's probably maybe one more that is stabilized. You know, these are credits that are looking for long-term fixed-rate financing that we're just not gonna do. Like the credit, they've been performing, and this was kind of the plan all along back from origination. I'd say it's fully expected.

Brent Bates: We anticipated this. This is what we talked about in Q4. It was kind of baked in, and, you know, we think there's probably maybe one more that is stabilized. You know, these are credits that are looking for long-term fixed-rate financing that we're just not gonna do. Like the credit, they've been performing, and this was kind of the plan all along back from origination. I'd say it's fully expected.

Speaker #2: But, like the credit, they've been performing, and this was kind of the plan all along from back from origination. So, I'd say it's fully expected.

Speaker #3: I would say most of these, when we come into something like a multifamily or something of this caliber, I mean, we're usually a five-year player in one of these deals.

Cory Newsom: I would say most of these, when we come into something like a multifamily or something of this caliber, I mean, we're usually a 5-year player in one of these deals to where it goes out, it can usually get some non-recourse funding from some other arm that's out there that's not necessarily as traditional as what we are. We kinda think we fit that role pretty well. I don't know that we're really prepared to start being the long-term holder on some of this stuff. What we try to make sure of is that we're ready to turn around and find something to replace it if those things continue to cycle. It's typically we're using some of the same relationships that are cycling some of this stuff on multiple occasions. We're gonna be careful with our hold limit.

Speaker #3: To where it goes out, it can usually get some non-recourse funding from some other arm that's out there that's not necessarily as traditional as what we are.

Speaker #3: We kind of think we fit that role pretty well. And I don't know that we're really prepared to start being the long-term holder on some of this stuff. What we try to make sure of is that we're ready to turn around and find something to replace it as those things continue to cycle.

Speaker #3: And it's typically we're using some of the same relationships that are cycling some of this stuff on, on, multiple occasions. So I mean, and we're going to be careful with our hold limit.

Speaker #3: I mean, we'd like to see this fall off, and in the next one come back on, and just keep going.

Cory Newsom: I mean, we'd like to see this fall off and then the next one come back on and just keep going.

Speaker #2: Yeah. And to Cory's point, just adding on—I mean, to your comment, that's really where some of our unfunded growth came from: replacing, with the same clients that were successful achieving their long-term fixed-rate goal.

Curtis Griffith: Yeah. To Cory's point, just adding on, I mean, to your comment, that's really where some of our unfunded growth came from, replacing with same clients that that were successful achieving their long-term fixed rate goal.

Brent Bates: Yeah. To Cory's point, just adding on, I mean, to your comment, that's really where some of our unfunded growth came from, replacing with same clients that that were successful achieving their long-term fixed rate goal.

Speaker #5: Got it. Okay. Makes sense. So I mean, if I think about the, the reduction in loans on an end-of-period basis this quarter, I mean, that would seem to imply, if you think you can still hit the guide, that there's, you know, maybe 200 million of incremental organic growth for the rest of the year.

Stephen Scouten: Got it. Okay. Makes sense. I mean, if I think about the reduction in loans on an end-of-period basis this quarter, I mean, that would seem to imply if you think you can still hit the guide that there's, you know, maybe $200 million of incremental organic growth for the rest of the year, you know, a pretty significant pace. Am I thinking about that correctly for the rest of the year?

Speaker #5: you know, a pretty a pretty significant pace. Is that am I am I thinking about that correctly for the rest of the year?

Speaker #4: We're, we're still very comfortable with our the gu the guidance that we put out. I mean, and it's I mean, we-we're not we're not sitting here trying to convince everybody that we're just going to be high single digits.

Cory Newsom: We're still very comfortable with the guidance that we put out. I mean, we're not sitting here trying to convince everybody that we're just going to be high single digits. I mean, low to mid-single digit growth, we're still very comfortable where we think we are.

Speaker #4: But I mean, low-to-mid single-digit growth, we-we're still very comfortable where we think we are.

Speaker #5: Okay, helpful. And then maybe lastly, I know it's still very early, early days here, but just in terms of BOH and the extraction of the synergies, kind of how has that progressed?

Stephen Scouten: Okay. Helpful. Then maybe lastly, I know it's still very early days here, but just in terms of BOH and the extraction of the synergies, kinda how has that progressed? Do you feel good about the realization of all those cost saves and kind of any change in terms of the timing of when you'd anticipate those coming through?

Speaker #5: Do you feel good about the realization of all those cost saves, and is there any change in terms of the timing of when you'd anticipate those coming through?

Cory Newsom: Here's what I tell you. This is kind of what we're really proud of, and this is what we've been very, very focused on, is trying to make sure that we're efficient in the process of trying to do an acquisition. I think it's gonna impact how people look at us on the next acquisition that we wanna do. If you look at how this one came together, we closed, we have converted and integrated everything about this inside of a quarter. That's, I mean, like, we're gonna do a conversion 8 May. Our team has been very, very thoughtful. I mean, we've had, I mean, from a project lead all the way through, trying to make sure that we take this from cradle to grave all the way in the right fashion.

Speaker #3: So here—here's, here's what I tell you. This is kind of what we're really proud of. And this is what we've been very, very focused on, is trying to make sure that we're efficient in the process of trying to do an acquisition.

Speaker #3: Because I think it's going to impact how people look at us on the next acquisition that we want to do. If you look at how this one came together, we closed we will be have converted and integrated everything about this inside of a quarter.

Speaker #3: And that's I mean, like, we're going through a conversion May 8th. And our team has been very, very thoughtful. I mean, we've had I mean, from a project lead all the way through trying to make sure that we-we take this from cradle to grave all the way in, in the in the right fashion.

Speaker #3: The other side of that is, is, is we've tried to make sure that we maintain very good communication in trying to onboard these people so that we could be successful.

Cory Newsom: The other side that is, we've tried to make sure that we maintain very good communication in trying to onboard these people so that we can be successful. Well, the last thing we wanna do is come in here and not be successful in retaining the business that we have, that they have, that we really liked. I mean, if you look back through when we did due diligence, I mean, we were past 65% of the portfolio looking at it. We liked what we saw, and we don't wanna lose it. We've had to really be thoughtful in trying to make sure that we're prepared to do this in a way that we could find success instead of the way you see some transactions have gone, where you kind of have a big runoff after the fact.

Speaker #3: Well, the last thing we want to do is come in here and not be successful in retaining the business that we have, that, that, that they have that we really like.

Speaker #3: I mean, if you look back through when we did due diligence, I mean, we were past 65% of the portfolio looking at it.

Speaker #3: We liked what we saw. And we don't want to lose it. So we've had to really be thoughtful in trying to make sure that we're prepared to, to, to do this in a way that we could find success ins, instead of the way you've seen some transactions have gone where you kind of have a big runoff after the fact.

Speaker #3: I don't see that coming for us. I'm, I'm really content where, where we are. I don't think any one of us would sit here and tell you that we I don't think you could find buyer's regret at any point in time with us right now at all.

Cory Newsom: I don't see that coming for us. I'm really content where we are. I don't think any one of us would sit here and tell you. I don't think you could find buyer's regret at any point in time with us right now at all.

Speaker #2: Steve, Miss Curtis, and to be clear, this is not in the projections and everything that we put out, but we felt all along—and in talking and working with the team there, I think we're even more convinced of it—that they have some real good opportunities.

Curtis Griffith: Steve, this is Curtis. To be clear, this is not in the projections and everything that we put out. We felt all along, and in talking and working with the team there, I think we're even more convinced of it, that they have some real good opportunities. They were becoming, as we've said a few times now, pretty constrained by liquidity, and now that's not a problem. I mean, I guess ultimately, everybody, we've got to maintain good liquidity. We're not gonna get stretched, but it's gonna be transformative to their ability to go back out to their customers and customers they wanted to get, and start bringing those loans in. That's not gonna happen overnight.

Speaker #2: They were becoming, as we've said a few times now, pretty constrained by liquidity. And now that's not a problem. I mean, I guess ultimately, everybody—we've got to maintain good liquidity.

Speaker #2: We're not going to get stretched. But it's going to be transformative to their ability to go back out to their customers and customers they wanted to get and, and start bringing those loans in.

Speaker #2: That's not going to happen overnight. I don't look for huge increases in Q2, but I do think that we—we'll hit some targets in Q3 and Q4, overall for the year.

Curtis Griffith: I don't look for huge increases in Q2, but I do think that we'll hit some targets in Q3, Q4 for overall for the year, because I think the business is there, and I think this team can go get it.

Speaker #2: Because I think the business is there, and I think this team can go get it.

Speaker #3: Yeah. I mean, look, we like what Bank of Houston brings to us, but I think it's fair to say they like what we bring to them.

Cory Newsom: Yeah. I mean, look, we like what Bank of Houston brings to us, but I think it's fair to say they like what we bring to them.

Curtis Griffith: Yeah.

Speaker #3: And I think we've just expanded a little bit of an opportunity with some of the scale that we've had the ability to, to probably do that it's been a little bit more challenging for them.

Cory Newsom: I think we just expand a little bit of an opportunity with some of the scale that we've had the ability to probably do that it's been a little bit more challenging for them. Yeah, I, I do feel really good about it right now.

Speaker #3: And so, yeah, I do feel really good about it right now. But we're not taking anything for granted and will be very, very focused on it.

Curtis Griffith: Yeah.

Cory Newsom: We're not taking anything for granted. We have to be very, very focused on it.

Speaker #2: Awesome.

Curtis Griffith: Of course.

Speaker #5: Yeah. And, and what are you hearing last thing from me, really? What are you hearing from your customers, maybe in West Texas and, and kind of throughout your footprint, around the price of oil and kind of the, the macro impacts from, from the Iranian conflict and kind of if that extends, if the price of oil extends here around 100 dollars for a longer period of time, would that have a, you know, kind of pronounced impact on, on those markets and, and potentially the, the loan growth targets?

Stephen Scouten: Yeah. What are you hearing, last thing from me really, what are you hearing from your customers maybe in West Texas and kind of throughout your footprint around the price of oil and kind of the macro impacts from the Iranian conflict? If that extends, if the price of oil extends here around $100 for a longer period of time, would that have a, you know, kind of pronounced impact on those markets and potentially the loan growth targets?

Speaker #4: I think there are a lot of them that are taking advantage of the price of oil if they're on that side of the deal. But nobody's going out there and trying to make long-term commitments on the price of oil being at that level.

Cory Newsom: I think there's a lot of them that are taking advantage of price of oil if they're on that side of the deal. Nobody's going out there and trying to make long-term commitments on a price of oil being at that level. We are not seeing any of that with our customer base. They're pretty much everybody we talk to, they're all telling you the same thing. It ain't gonna last, and we're not gonna get ourselves back to a corner on it. Brent, you've talked about, I mean, from the deck of your underwriting, I mean, y'all don't even factor that in at all.

Speaker #4: We are not seeing any of that with our customer base. They're pretty much everybody we talk to, they're all telling you the same thing.

Speaker #4: It ain't going to last. And we're not going to get ourselves back to into a corner on it. And Brent, you've talked about I mean, from the deck of your underwriting, I mean, y'all don't even factor that in at all.

Speaker #2: Yeah, we don't. We don't factor. And, I mean, on the consumer side, we haven't seen any impact on that side either, from the consumer side of that.

Brent Bates: Yeah, we don't. We don't factor in. I mean, on the consumer side, we haven't seen any impact on that side either from the consumer side of that at this stage.

Speaker #2: at this stage.

Speaker #4: I don't think we're I don't think we really have much of our customer base that's, that's in a position where they get hurt by it in some big fashion.

Cory Newsom: I don't think we really have much of our customer base that's in a position where they get hurt by it in some big fashion.

Stephen Scouten: Got it.

Speaker #4: We're not in for that.

Cory Newsom: We're not exposed.

Speaker #5: Thanks so much for the time.

Stephen Scouten: All right. Thanks so much for the time.

Speaker #4: You bet.

Cory Newsom: You bet.

Speaker #2: Yeah. Thanks, Steve.

Curtis Griffith: Yeah. Thanks, Steve.

Speaker #6: As a reminder, this is Star One on your telephone keypad. If you would like to ask a question, our next question is from Jo Yang Chunis.

Operator 3: As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Joe Yanchunis with Raymond James. Please proceed.

Operator: As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Joe Yanchunis with Raymond James. Please proceed.

Speaker #6: With Raymond James, please proceed.

Speaker #7: Good afternoon.

Joe Yanchunis: Good afternoon.

Speaker #4: Hi, Jo.

Cory Newsom: Hi, Joe.

Curtis Griffith: Hello, Joe.

Speaker #2: Hello.

Speaker #4: Hi.

Joe Yanchunis: I want to beat the horse one more time and ask about the NIM here. It sounds like you're optimistic you can keep the NIM relatively steady, and I understand there's a lot of moving parts. You know, in your deck, you call it a pro forma NIM of 4.02. Does that pro forma NIM back out the onetime loan interest recovery you received in Q1? I'm just trying to understand what the jumping off point is.

Speaker #7: Well, I wanted to beat the horse one more time and ask about the NIM here. It sounds like you're optimistic you can keep the NIM relatively steady.

Speaker #7: And I understand there's a lot of moving parts. So, you know, in your deck, you call it a pro forma NIM of 4.02.

Speaker #7: Does that pro forma NIM back out the one-time loan interest recovery you received in the March quarter? I'm just trying to understand what the jumping-off point is.

Speaker #4: No, that is that. That is just using our gross NIM, just pushing the two together.

Steven Crockett: No, that is just using our gross NIM. Just pushing the two together.

Joe Yanchunis: Okay, got it. Shifting over to loans. Can you talk about, you know, just a little more about your energy portfolio and what the exposure is on a pro forma basis? You know, what does loan demand look like in that vertical in the quarter?

Speaker #7: Okay. Gotcha. and then shifting over to loans, so can you talk about, you know, just a little more about your energy portfolio and what the exposure is on a pro forma basis?

Speaker #7: And, you know, what does loan demand look like in that vertical in the quarter?

Speaker #4: Yeah. Jo, most of our energy portfolio is really on the CNI servicing side. That's small business clients that, you know, we know well, have been in the business, and survived cycles in the past.

Brent Bates: Yeah. Joe, most of our energy portfolio is really on the C&I servicing side. That's small business clients that, you know, we know well, have been in the business and survived cycles in the past. Really, we don't have a whole lot of exposure in that segment to upstream lending.

Speaker #4: And so, really, we don't have a whole lot of exposure in that segment to upstream lending.

Speaker #7: Okay. So pretty steady then for on a pro forma basis. I think last update you gave, I think it was around 4%.

Joe Yanchunis: Okay. Pretty steady then for on a pro forma basis. I think last update you gave, I think it was around 4%.

Speaker #4: Yes. Yeah. We're still we're still running under, under 5% of the portfolio.

Brent Bates: Yes. Yeah.

Brent Bates: Okay.

Joe Yanchunis: Okay.

Brent Bates: We're still running under 5% of the portfolio.

Speaker #7: And then w-what about in the, it looks like the major metro kind of market loan balance does appear to be on a downward trajectory.

Joe Yanchunis: What about it looks like the major metro kind of market loan balances appear to be on a downward trajectory, and I assume that's a function of payoffs. Can you talk about your pipeline, you know, that exists within these markets, especially given the backdrop of your kind of aggressive lender higher approach?

Speaker #7: And I assume that’s a function of payoffs. Can you talk about your pipeline that exists within these markets, especially given the backdrop of your kind of aggressive lender hire approach?

Speaker #4: Yeah. The pi the pipeline is really, I'm pleased with it, particularly on a combined basis. it's, it's strong. I think what you're seeing there is the effect of the decline in multifamily over the over the last really four quarters.

Brent Bates: Yeah. The pipeline is really, I'm pleased with it, particularly on a combined basis. It's strong. I think what you're seeing there is the effect of the decline in multifamily over the last really 4 quarters, which is exactly what we experienced this quarter, loans going into the permanent market for long-term fixed rates. I think that's really the effect that you're seeing there in the metro markets. A lot of those loans were in our metro markets, our pipelines are very strong, particularly on a combined basis.

Speaker #4: Which is exactly what we experienced this quarter—loans going into the permanent market for long-term fixed rates. So, I think that's really the effect that you're seeing there in the metro markets.

Speaker #4: A lot of those loans were in our metro markets. But our pipelines are very strong, particularly on a combined basis.

Speaker #3: Jo, I think if you go back and look overla over the last year, we had identified a handful of credits that we wanted to exit a relationship with.

Cory Newsom: Joe, I think if you go back and look over the last year, we had identified a handful of credits that we wanted to exit a relationship with. I mean, we didn't hide it in any form or fashion. We don't have that right now. I mean, we feel pretty good about the portfolio, and I don't really know of any significance that we've got identified that we need to separate from. I think we accomplished what we wanted to. We identified the ones that we felt like that probably weren't prepared to move into higher rates from the cheaper stuff that the way they got into it originally. I think we're kind of past that.

Speaker #3: We and had no I mean, we didn't hide it in any form or fashion. We don't have that right now. I mean, we feel pretty good about the portfolio.

Speaker #3: And I don't I don't really know of anything that if, if any significance that we've got identified that we need to separate from. And so I, I think we, we accomplished what we wanted to.

Speaker #3: We’ve identified the ones that we felt like probably weren’t prepared to move into higher rates from the cheaper stuff—that’s the way they got into it originally.

Speaker #3: I think we're kind of past that. I mean, we're stressing the portfolio every which way you can imagine, and we feel really good about it.

Cory Newsom: I mean, we're stressing the portfolio every which way you could imagine, and we feel really good about it. I do. That's why we still feel confident about the guidance we gave out on loan growth.

Speaker #3: I, I do that's why we still feel confident about the guidance we gave out on, loan growth.

Speaker #7: Okay. Then l-last one from me here. So, I mean, it sounds like the kind of year-over-year decline in multifamily portfolio loans could reverse with some of the unfunded commitments that you have.

Joe Yanchunis: Okay, last one from me here. I mean, it sounds like the kind of year over year decline in multifamily portfolio loans could reverse with some of the unfunded commitments that you have. Just kind of wondering, where are you seeing the best risk-adjusted returns across your portfolios right now?

Speaker #7: Just kind of wondering, where are you seeing the best risk-adjusted returns across your portfolios right now?

Speaker #4: All right. I—I couldn't hear you, Jo. What was your question?

Brent Bates: Sorry, I couldn't hear you, Joe. What was your question?

Speaker #7: The best risk-adjusted returns that you're seeing from a lending perspective?

Joe Yanchunis: The best risk-adjusted returns that you're seeing on from a lending perspective.

Brent Bates: Oh.

Speaker #4: Oh, CD Secured.

Cory Newsom: CD secured. No, I mean, if you look at the, I mean, the owner-occupied stuff, I mean, there's a, there's a variety of things that. I mean, it's like we said earlier, we're not getting out there doing a lot of stuff that is a little bit edgy by in any stretch. Brent?

Speaker #3: No, I mean, if you look at the— I mean, the owner-occupied stuff, I mean, there's a variety of things that I— I mean, just like we said earlier, we're not getting out there doing a lot of stuff that is a little bit edgy by any stretch.

Brent Bates: I'd agree. you know, To Cory's point, I mean, on our residential sides, we got pretty good risk-adjusted yields there as well as ag. Production still actually has good yields on the funded balances as it funds throughout the year.

Speaker #4: I'd agree. And, you know, to Corey's point, I mean, on our residential sides, we've got pretty good risk-adjusted yields there, as well as the ag.

Speaker #4: Production still actually has good yields on the funded balances as it funds throughout the year.

Speaker #7: Okay. Great. Well, thank you for taking my questions.

Joe Yanchunis: Okay, great. Well, thank you for taking my questions.

Speaker #3: Thanks, Jo.

Curtis Griffith: Thanks, Joe.

Brent Bates: Thanks, Joe.

Curtis Griffith: Thanks, Joe.

Cory Newsom: Thanks, Joe.

Speaker #4: Thank you.

Speaker #6: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Curtis Griffith for closing remarks.

Operator 3: We have reached the end of our question and answer session. I would like to turn the conference back over to Curtis Griffith for closing remarks.

Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to Curtis Griffith for closing remarks.

Speaker #1: Thank you, operator. And thanks to everyone joining us on today's call. We are pleased with our first quarter performance, reflect some strong profitability. Improving credit quality and continued discipline across our balance sheet.

Curtis Griffith: Thank you, operator, thanks to everyone joining us on today's call. We are pleased with our Q1 performance. It reflects some strong profitability, improving credit quality, and continued discipline across our balance sheet. We've also successfully completed the Bank of Houston acquisition, transaction that meaningfully enhances our presence in a highly attractive market and aligns well with our long-term strategy. We believe we've laid the foundation to continue building a larger, more capable community bank. That includes investments in our people, technology, operating infrastructure that support both organic growth and disciplined M&A. While the near-term environment remains uncertain, we are confident in our strategy, our capital position, and our ability to execute. Most importantly, we remain focused on creating a long-term value for our shareholders while continuing to serve our customers and communities.

Speaker #1: We've also successfully completed the Bank of Houston acquisition. Transaction that meaningfully enhances our presence in a highly attractive market and aligns well with our long-term strategy.

Speaker #1: We believe we've laid the foundation to continue building a larger, more capable community bank. That includes investments in our people, technology, and operating infrastructure that support both organic growth and disciplined M&A.

Speaker #1: While the near-term environment remains uncertain, we are confident in our strategy, our capital position, and our ability to execute. Most importantly, we remain focused on creating long-term value for our shareholders, while continuing to serve our customers and communities.

Speaker #1: I'd also like to take a moment to thank our employees across Citibank, including our newest team from Bank of Houston, for their hard work, commitment, and professionalism—particularly during a period of ongoing change.

Curtis Griffith: I'd also like to take a moment to thank our employees across City Bank, including our newest team from Bank of Houston, for their hard work, commitment, and professionalism, particularly during a period of ongoing change. Their dedication to our customers and communities continues to be a key driver of our success. Thank you again for your time and interest in South Plains Financial.

Speaker #1: Their dedication to our customers and communities continues to be a key driver of our success. Thank you again for your time and interest in South Plains Financial.

Operator 3: Thank you. This will conclude today's conference. You may disconnect at this time, thank you for your participation.

Operator: Thank you. This will conclude today's conference. You may disconnect at this time, thank you for your participation.

Q1 2026 South Plains Financial Inc Earnings Call

Request DemoDemo

South Plains Financial

Earnings