South Plains (SPFI) Q1 2025 Earnings Transcript

South Plains Financial delivered a solid quarter with deposits up $171.6 million to $3.79 billion, NIM expanding 6 bps to 3.81%, and non-performing assets improving to 0.16% of total assets. Capital remained strong with CET1 at 13.59% and tier 1 leverage at 12.04%, while the company returned capital via a $0.15 quarterly dividend and $8.3 million of buybacks. Offsetting the positives, EPS fell to $0.72 from $0.96 on a $3 million MSR fair value hit, and management flagged slower loan growth and macro uncertainty from tariff-related recession risk.

Analysis

SPFI is benefiting from a classic regional-bank setup where funding repricing is still working in its favor while credit looks cleaner than feared. The subtle point is that the balance-sheet mix is now good enough that even modest loan growth can keep NIM drifting higher, because the bank has room to squeeze deposit beta further without immediately jeopardizing liquidity. That creates a near-term earnings torque profile that is more dependent on deposit discipline than on headline loan growth.

The market may be underappreciating how much of the quarter’s EPS volatility is non-core and how quickly that can normalize. MSR marks are a double-edged sword: they hurt reported income now, but if rates stabilize or back up, the reversal can provide an incremental boost later this year. More importantly, the cleaner credit print and runoff of one troubled credit reduce the odds of a reserve build cycle, which is the real risk to TBV compounding over the next 2-3 quarters.

The bigger strategic issue is that SPFI is likely to face a barbell of slower balance-sheet growth and potentially better margins. In a tariff/recession scare, public-fund deposits can reverse quickly, so the bank’s excess liquidity is an asset today but a drag if it forces lower-yielding cash deployment. That argues for a name that should outperform on relative basis versus weaker Texas regionals with more concentrated C&I books, but not necessarily a multiple re-rating until fee income and loan pipelines prove they can offset runoff.

Key Decisions for Investors

• Long SPFI common for 3-6 months; upside case is modest EPS and TBV accretion as deposit costs continue to grind lower, with downside limited by strong capital and buybacks, but size modestly because the stock still depends on low-teens loan growth assumptions that now look optimistic.
• Pair trade: long SPFI / short a higher-C&I Texas regional bank with weaker credit and tighter capital, targeting 10-15% relative outperformance over 1-2 quarters if recession fears widen and quality spreads remain in focus.
• Sell near-dated cash-secured puts on SPFI only if implied volatility spikes on macro headlines; the thesis is that liquidity and capital make a sharp drawdown less likely, but the position should be used only where the premium compensates for deposit-outflow risk.
• Avoid chasing the stock on a simple NIM story alone; wait for either a better entry after any Q2 deposit normalization or a confirmatory print showing loan runoff was offset by production, since the next leg higher likely requires evidence of operating leverage, not just rate beta.