South Plains Financial NASDAQ: SPFI reported first-quarter 2026 results that management described as solid, highlighting profitability, improving credit quality and disciplined balance sheet management as the company closed its acquisition of Bank of Houston (BOH) on April 1.
Management highlights profitability, credit quality and balance sheet discipline
Chairman and CEO Curtis Griffith said the company continued to execute its strategy amid an uncertain market backdrop, focusing on expanding its lending team in high-growth Texas markets while also pursuing “accretive M&A.” Griffith said South Plains has been selectively adding experienced lenders who fit the company culture and can bring long-term customer relationships.
Griffith said the BOH integration was progressing according to plan, with a core conversion expected in early May. He also pointed to early steps to optimize BOH’s balance sheet, including a reduction in brokered deposits and Federal Home Loan Bank borrowings that began during the first quarter.
On the macro backdrop, Griffith said the company remained cautious near term, citing inflationary pressures that “appear to be resurfacing,” driven in part by elevated energy prices tied to conflict in the Middle East. He said those dynamics could limit the Federal Reserve’s ability to reduce rates further, potentially weighing on economic activity and loan growth while also limiting further reductions in the company’s cost of funds. Still, Griffith said management remained positive on Texas’ longer-term prospects, pointing to corporate relocations, demographic trends and population growth.
Earnings dip from linked quarter as acquisition costs and SBIC loss weigh
Chief Financial Officer and Treasurer Steve Crockett reported diluted earnings per share of $0.85 for the first quarter, compared with $0.90 in the linked quarter. Crockett said the decrease was primarily due to acquisition-related expenses and a loss on an SBIC investment, partially offset by a lower provision for credit losses.
Net interest income was $43 million, in line with the fourth quarter. Net interest margin (tax-equivalent) was 4.04%, up from 4.00% in the linked quarter. Crockett said the first-quarter margin included a 5 basis point benefit from $545,000 of non-accrual loan interest recovery. Excluding problem loan interest and fee recoveries, Crockett said the company delivered steady net interest margin expansion through 2025 that has “started to moderate,” with a goal of maintaining profitability at current levels while growing the balance sheet.
Non-interest expense rose $2.5 million to $35.5 million. Crockett attributed the increase to a $1.8 million rise in personnel expenses—driven by annual salary adjustments and higher incentive compensation—plus a $542,000 increase in professional services costs. He said acquisition-related expenses totaled approximately $1.5 million during the first quarter, including $1.2 million for professional services.
Loans decline on expected payoffs, but pipeline and commitments grow
President Cory Newsom said loans held for investment decreased $41 million to $3.1 billion from the linked quarter, driven mainly by the expected early payoff of a $30 million multifamily loan and $24 million of seasonal net paydowns in agricultural loans. He emphasized that the company experienced “strong unfunded loan commitment growth” during the quarter, driven in part by new hires, and said these commitments are largely construction-related and are expected to fund through the year.
Loan yield was 6.83% versus 6.79% in the linked quarter. Newsom said the company had not seen a material impact on loan yields from the Federal Open Market Committee’s 25-basis-point reductions in September and December, but he expects loan yields to moderate in coming quarters.
In major metropolitan markets (Dallas, Houston and El Paso), loans held for investment declined $23 million to $1.0 billion, largely due to the multifamily payoff. Newsom said another early payoff of approximately $34 million multifamily loan is expected, and that large payoffs will remain a headwind to loan growth. However, he said the loan pipeline remained healthy and the company still expected to deliver full-year loan growth guidance “towards the lower end” of its mid- to high-single-digit range. Later in Q&A, Newsom characterized expectations as “low to mid-single digit growth” while remaining comfortable with guidance.
During questions, management reiterated that multifamily payoffs were expected as part of the lending strategy. Discussing these payoffs, Brent Bates, the company’s Chief Credit Officer, said the credits were “performing” and that refinancing into long-term fixed-rate structures was part of the plan “all along back from origination.” Newsom added that South Plains is typically not a long-term holder of some multifamily loans and aims to replace payoffs with new opportunities, often with the same clients.
Deposits grow; credit metrics improve; dividend declared
Deposits increased $154 million, or 4%, to $4.03 billion. Crockett said the company saw strong organic growth across retail, commercial and public fund deposits. He noted South Plains expects some public funds and other deposits to flow out during the second quarter due to annual tax payments, leading to expectations for deposits to be “flat to down” in the second quarter before returning to growth in the second half of 2026, excluding acquisition deposits.
Non-interest-bearing deposits increased $11 million and represented 25.7% of total deposits at quarter-end, down from 26.4% in the linked quarter. Cost of deposits decreased 4 basis points to 1.97%. Crockett said the company continued repricing its deposit base lower after the Fed’s December rate cut and expects cost of funds to hold steady in the second quarter absent further rate reductions and before factoring in acquisition deposits.
On credit, the allowance for credit losses to total loans held for investment was 1.44%, stable from the prior quarter. The company recorded a $260,000 provision for credit losses related entirely to unfunded loan commitments, compared with $1.8 million in the linked quarter. Crockett attributed the decrease to lower loan balances, a $4.8 million decrease in non-performing loans and a $460,000 decrease in net charge-offs.
The company’s tangible common equity to tangible assets was 10.48% at quarter-end. Tangible book value per share increased to $29.65 from $29.05, driven primarily by $11.8 million of net income after dividends paid.
Griffith also said the board authorized a quarterly dividend of $0.17 per share on April 16, marking the company’s 28th consecutive dividend.
Bank of Houston deal details and integration focus
Management reiterated expectations that the BOH merger remains compelling, with Griffith stating the company continued to expect the transaction to be 11% accretive to earnings in 2027 with a tangible book value earnback of less than three years.
On provided BOH metrics, Crockett said BOH had approximately $632 million of loans at March 31 with a portfolio loan yield of 6.94%, and $596 million of deposits, with non-interest-bearing deposits representing 16% of the total. Interest-bearing deposits carried a cost of 342 basis points, BOH had $15 million in borrowings, and net interest margin was 3.9%.
On a pro forma basis for the first quarter, Crockett said the combined bank’s cost of deposits was 210 basis points and net interest margin was 4.02%. In response to questions about funding optimization, Crockett said the opportunity to reduce higher-cost and non-core sources is “real,” but the bank is focused on balancing liquidity, loan growth expectations and customer retention. Griffith added that the bank has a list of brokered deposits and other non-core funding sources and plans to pay down higher-cost items as they mature, though he cautioned that BOH is still a relatively small part of the overall balance sheet.
Newsom said the company was focused on executing the integration efficiently and retaining BOH’s business, noting the planned May 8 conversion and emphasizing the company’s communication and onboarding efforts to reduce the risk of runoff.
Mortgage banking and non-interest income
Newsom said non-interest income increased during the quarter, driven primarily by higher mortgage banking revenues, partially offset by the SBIC investment loss. He said the company remained pleased with mortgage performance in a low-transaction, high-rate environment and believed it was positioned for an eventual upturn in volumes. In Q&A, Bates said mortgage remains a business the company likes, but added that “rates probably have to drop quite a bit to make a meaningful difference.” Newsom said the company’s focus has been maintaining the “nucleus” of the mortgage business and keeping it profitable, emphasizing the ability to provide the service to clients and scale production when demand returns.
About South Plains Financial NASDAQ: SPFI
South Plains Financial, Inc is the bank holding company for South Plains Bank, a community-oriented financial institution headquartered in Lubbock, Texas. The company operates as a full-service commercial bank, providing a broad spectrum of banking solutions to individuals, small businesses and agricultural clients. Its principal subsidiary, South Plains Bank, holds state and national banking charters and is subject to regulatory oversight by the Federal Reserve and various state banking authorities.
The company’s product offerings include traditional deposit accounts such as checking, savings and money market accounts, as well as time deposits.
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