South Plains Financial Inc Stock

Good morning, ladies and gentlemen, and welcome to the South Plains Financial, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded.

I'd 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 morning, 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 on 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.

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.

Thank you, Steve, and good morning, everyone. Before we get into the second quarter's results, I want to take a moment to touch on the leadership transition that we have been planning for many years. As we announced in June, I will retire as the company's Chief Executive Officer at the end of this year, and Cory will then take over as CEO on January 1, 2027.

I will continue to serve as the company's Chairman of the Board, but in a nonexecutive capacity. I am so grateful to have been a part of City Bank's transformation from a small institution to one of the largest banks in West Texas with a brand recognized across the entire state.

I joined the First State Bank's Board of Directors in 1972 and was elected Chairman in 1984 when it was a small town institution with just $30 million in assets. At that time, we saw an opportunity to grow the bank through both organic growth and accretive acquisitions. I'm very proud to report that we now have approximately $5.4 billion in assets at the end of the second quarter.

Our growth and success are an incredible accomplishment that was only made possible through the hard work and commitment of our employees. I would like to thank each and every one of them for their hard work and dedication to the bank and our customers over the years. You are the reason for our success. I am most proud of the culture that we've created, one centered on relationships and a shared commitment to helping people succeed.

Our customers and the communities that we serve have always been the key to our success. We have maintained a strong brand, which continues to be well recognized for the best-in-class service that we provide, the high-quality products that we deliver and the relationships that we build. These attributes have continued to differentiate our bank from the competition and allow us to hold a leading deposit market share across our core rural markets.

The bank is in a strong position and the time is right for me to retire from the management team. As I noted, we have been planning this transition for many years. Cory has been instrumental throughout this process. He has been leading our day-to-day operations and driving our growth strategy with a clear focus on disciplined organic loan growth and strategic M&A, most notably the recent successful acquisition and integration of the Bank of Houston.

With Cory's expertise and dedication, we've set ourselves up for a seamless leadership transition at year-end. I'm confident that he is the right leader to oversee the company as we continue to execute our growth strategy and create long-term shareholder value. I'm also going to stay engaged with the bank and with Cory, as I continue to be City Bank's Chairman of the Board as well as work as a consultant to the company.

Before I turn the call over to Cory, I want to address my recent stock sale as disclosed in our press release and related 8-K filing in June. Similar to our leadership transition, this sale has been a part of our long-term plan and is representative of a long-standing estate planning strategy that I've had in place.

Additionally, my family has several agricultural businesses that we've made investments into over the years, and a portion of the proceeds from my share sale, will also help fund investments into those businesses over the medium term. Importantly, my family and I continue to be significant shareholders of South Plains and remain confident in the company's outlook. I absolutely believe that the future is very bright for our company, and I'm very pleased to see Cory officially take over at year-end.

Let me now turn the call over to him. Cory?

Thank you, Curtis, and thank you for all your support and guidance over the years. I'm very proud of the bank that we've built together and excited to transition into the role of CEO. As you mentioned, the bank is performing at a high level as we execute our strategy focused on maximizing our lending team across our high-growth Texas markets while also pursuing accretive M&A.

We look to continue this execution as we work to grow the earnings power of the bank. Importantly, we are pleased with our talented lending team and the meaningful organic growth opportunities we believe are in front of us. Looking ahead, a major focus will remain squarely on the organic growth while maximizing the efficiency of our operations and delivering improved returns over time.

I'm also pleased with our second quarter results as we delivered another solid quarter as can be seen on Slide 4. Our profitability remained resilient, supported by a stable net interest margin and continued balance sheet management. Our conservative credit culture remains unchanged as we proactively identify and address risk. Specifically, we believe the overall credit quality of our loan portfolio remains a strength of the bank.

Additionally, economic activity in our Texas markets remains healthy as demonstrated by our strong loan pipeline and higher-than-expected deposit performance in the quarter. That said, we are maintaining our cautious and conservative approach, especially given the elevated interest rate environment and lingering inflationary pressures while remaining optimistic with the opportunities that we see ahead.

Now let me get into some of the second quarter financial results. Turning to Slide 6. Our loans held for investment increased by $677.3 million (sic) [ $667.3 million ] to $3.77 billion as compared to the linked quarter. The increase was primarily a result of $632 million in loans from our Bank of Houston acquisition and $35 million of organic loan growth during the quarter. Of note, we continue to experience elevated levels of payoffs as 2 loans totaling $37.5 million paid off.

Looking to future periods, we expect paydowns to continue to be a headwind to overall loan growth. However, underlying loan demand is healthy, and we remain confident in delivering our full year loan growth guidance in the mid-single digits. Our yield on loans was 6.81% in the second quarter, down slightly from 6.83% in the first quarter.

Excluding problem loan interest and fee recoveries noted on Slide 6, our yield on loans was held relatively steady over the last 5 quarters. Though there are still economic uncertainties and forecasted interest rates, we will remain focused on maintaining our margin as we look to grow our balance sheet.

Turning to Slide 7. Our loan held for investment in our major metropolitan markets of Dallas, Houston and El Paso increased $682 million to $1.69 billion as compared to the linked quarter. This increase was due to the $632 million of loans from the Bank of Houston acquisition and $50 million in organic loan growth. I'm pleased to report that 3 months after the transaction closing, the integration of Bank of Houston has been largely completed with the conversion occurring in May. We continue to be impressed with the new Houston team, the dedication they have to delivering strong results from their market and the similarities in our cultures.

The success of the acquisition and integration reflects the planning, preparation and operational capabilities of both our teams, and I would like to thank our employees for their efforts. Looking forward, we see further opportunities to optimize the acquired balance sheet as we continue to evaluate higher cost funding sources and certain relationships to ensure they align with our long-term strategic and profitability objectives. Overall, the acquired loan portfolio has performed in line with our expectations.

As we have discussed on prior calls, M&A is part of our strategic growth plan, and we have the capacity and ability to execute another acquisition, but we've not yet identified a potential transaction partner that meets our strict criteria. We will remain highly disciplined as we are not interested in growth for growth's sake and continue to believe that any potential partner must align with our culture, credit discipline and community banking focus and be in the best strategic and financial interest of our shareholders. Additionally, we have ample organic growth opportunities ahead to further expand the bank, which is our primary focus today.

Moving to Slide 11. We generated $14.1 million of noninterest income for the second quarter of 2026 compared to $11.3 million in the linked quarter. The increase from the first quarter was primarily due to an increase of $929,000 in mortgage banking revenues as mortgage originations improved during the quarter and an increase of $894,000 in bank card services and interchange revenue, mainly due to continued growth in customer card usage and incentives received during the period.

As it can be seen on Slide 12, the increase in mortgage banking revenues was mainly due to improved mortgage originations during the quarter given the spring selling season, though volumes remain subdued given the higher level of interest rates. That said, our mortgage business continues to perform well despite the low transactional environment and remains poised for the eventual upturn as rates normalize lower. For the second quarter, noninterest income was 22% of bank revenues, essentially flat with the linked quarter. Continue to grow our noninterest income remains a focus of our team.

To conclude, we believe that we are 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 also remain focused on both growing City Bank while 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 6% increase to our quarterly dividend to $0.18 per share on July 15, which will be our 29th consecutive dividend. I'm also pleased that we were able to buy back a portion of Curtis' shares as we focus on creating value for our shareholders.

With that, I'd like to turn the call over to Steve.

Thanks, Cory. For the second quarter, diluted earnings per share were $0.96 compared to $0.85 from the linked quarter. The increase was primarily due to the BOH acquisition, combined with improved noninterest income, which Cory discussed.

Starting on Slide 14. Net interest income was $50.3 million for the second quarter, up $7.4 million from the first quarter, largely due to the increase of BOH's $667 million of interest-earning assets. Our net interest margin on a tax equivalent basis was 4% in the second quarter as compared to 4.04% in the linked quarter. Our first quarter NIM was positively impacted by 5 basis points due to $545,000 of nonaccrual loan interest recovery.

Excluding the problem loan interest and fee recoveries noted on this slide, we've held our NIM steady over the last 4 quarters. Our goal is to maintain our profitability at current levels while growing our balance sheet as we execute our organic loan growth strategy, which we believe will drive earnings growth and improving returns over time.

As outlined on Slide 15, deposits increased by $613 million for the linked quarter, $4.64 billion. Acquired BOH deposits were $596 million, while we organically grew deposits by $17 million. Delivering organic deposit growth in the second quarter is a strong result given that we typically see deposits flow into the bank in the first quarter and then seasonally flow out in the second quarter as our customers make tax payments and a portion of our public funds exit.

Looking to the second half of the year, we expect moderate deposit growth to continue, though we are starting from a relatively higher base than in previous years, which is encouraging. Noninterest-bearing deposits represent 24.8% of total deposits at the end of the second quarter compared to 25.7% at the end of the linked quarter, largely due to BOH's ratio at acquisition being approximately 16%. Our cost of deposits increased by 11 basis points, which was in line with the expectations that we outlined on the first quarter's earnings call.

Looking forward, we continue to see an opportunity to reduce higher cost broker deposits and noncore funding sources as they mature, which is an important lever in maintaining our profitability at current levels.

Turning to Slide 17. Our ratio of allowance for credit losses to total loans was 1.41% at the end of the second quarter, stable from the prior quarter end. We recorded a $350,000 provision for credit losses, which related to our organic loan growth and net charge-off activity in the quarter.

We continue to believe that we are appropriately reserved for varying economic conditions. We did see an uptick in classified and nonperforming loans, primarily from BOH acquired loans, which we have expected. Our credit team is actively working these loans and will continue to help ensure a proper resolution.

Next, on Slide 19, our noninterest expense increased by $4.3 million to $39.9 million in the second quarter as compared to the linked quarter. The increase from the first quarter of 2026 primarily resulted from an increase of $2.7 million in core operating expenses related to the BOH acquisition and higher incentive-based compensation expense. There was approximately $1.1 million of acquisition-related expenses in the second quarter of 2026, of which $710,000 was for personnel expenses. Looking to the third quarter, we would expect the acquisition expense to be largely behind us.

Moving to Slide 21. We remain well capitalized with tangible common equity to tangible assets of 10.47% at the end of the second quarter and in line with the first quarter. Tangible book value per share was $29.57 as of June 30, 2026, in line with $29.65 as of March 31, 2026.

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

[Operator Instructions]. Our first question is from the line of Brett Rabatin with StoneX Group.

Congratulations, Curtis and Cory, on your new gigs. I wanted to start on just the forward margin and just thinking about -- we've talked in the past and you mentioned the opportunities to continue or to work on the brokered CDs of Bank of Houston and their cost of funds. Was any of that work done during the quarter? My guess is most of it is ahead of us as opposed to during 2Q. And just if you can reduce their cost of funds, it seem like the margin could continue to hold around 4%. I just wanted to get some outlook on the margin and just how much Bank of Houston cost of funds management might impact the overall number?

Yes, Brett, this is Steve. I'll start on that. We did do a little bit in the quarter. But as you can tell, we still have opportunities in front of us that we're working on right now. And so that will continue. We got the conversion done midway through the quarter. So we've now got them all on our system. And so we're able to see things a little bit better, have better understanding. So we are working on that.

Again, with the brokerage stuff, definitely the CDs as they come due, we have not gone back on those. So we'll just continue to optimize what we've got on their side. I would expect to see that a little bit better in the third quarter versus what we saw in Q2.

This is Curtis. We did pay off their borrowings to Federal Home Loan Bank. That's already done. But like Steve said, we've got maturities on some of these others that we'll be dealing with as they come due. But yes, we do believe there's still good opportunity there to get their cost of funds more in line with what our historical costs are.

Brett, this is Cory. There's a lot of different ways you could approach this. And one fell swoop could be pretty easy, and you could see a pretty good move in what's there. But we also are in the process -- I mean, we're negotiating rate differences on a lot of this stuff. We've taken them in a very measured pace. And we think there's opportunities to improve that and do it in a very effective manner. And so if you couple that with -- we still think our loan demand is strong, and we just want to be very smart about how we approach it.

Okay. And then specifically, guys, do you think the cost of funds can be managed much lower from here in the face of people talking about increased deposit competition? And then just any thoughts on the forward margin?

Yes. I mean it's rate outlook that's been a little bit of a moving target here with what's going on at a macro level. Yes, I think we're in a good spot. Some of that will depend on, again, what competition does. I mean, we do, again, look -- and some of it obviously depends on what our loan fundings look like and where we want liquidity to be. So I don't know that we can -- I mean, we can again optimize some of what they -- what we brought over.

Outside of that, overall cost of funds, given where rate outlook is, there's probably not a whole lot that we would want to do. Again, really want to maintain the -- be able to fund the loans that we anticipate being able to fund. But overall, we still want to try to manage NIM in the same range that we're at.

Okay. I appreciate the color on that. And then the other question I had was just around you done the conversion in May. I think the total expense savings from the deal was 25% or like $4.6 million. The expenses in 3Q come down a little bit? Or maybe just any thoughts on the progression on the expense side from here?

Yes. We should start seeing that decline a little bit. We -- since we had some of the acquisition-related expenses in there even before the -- and then the cost saves on top of that. So we should see that drop back down a little bit. So hopefully, Q1, Q2 -- Q2 really being the high mark, but the conversion expenses and those types should be largely behind us.

Brett, we were able to do with the conversion being early, it was after the close, it allowed us to start trying to cut some of those expenses faster than we really anticipated that we would be able to. So I think -- I agree with Steve. I think there's room for some improvement there.

Our next question is from the line of Joe Yanchunis with Raymond James.

So you talked about in your prepared remarks about paydowns likely being a partial headwind to future loan growth. Should we think about that starting to moderate in the back half of the year?

And then in a similar vein, has the commercial pipeline continued to build since quarter end? Are you seeing any meaningful change in customer demand or utilization rates?

Joe, this is Brent. I can address that. On our growth expectations, I feel really good about it. I mean you've got to think about the increase in the number of bankers, both from the acquisition and through hiring, along with just our overall increase in our pipeline quarter-over-quarter. I mean, we feel pretty good about our growth prospects for the second half of the year despite whether or not we have kind of this level of payoffs going forward, I feel like we can continue the path we're on.

So Joe, think about this with us for this quarter. We still -- I mean, we had some paydowns, and we still maintained a decent position on our loans. So we did that all the while going through a conversion. I mean, the amount of training that we've had to have focus, there's been a ton of noise inside this organization for this quarter, trying to get everything put in place like it's supposed to, and we still were able to manage the loans where we were.

We're getting all that stuff behind us. And these guys are really -- I mean, there's -- I would venture to say that there was probably several weeks in there that kind of Bank of Houston really probably came to a little bit of a screeching halt on putting fundings on and getting stuff done because as we went through that, not only did they -- we come in and do conversions, but all the training and everything that went with that.

So there's a fair amount of noise that we mixed in with this and still had the benefits that we did. I think it will -- I think that will help start offsetting some of the paydowns that you actually see in the future. And while we're we still feel good about our growth position on loans.

No, I appreciate that. That was helpful. And as you addressed one of Brett's questions about potentially pulling forward some of the expense savings from the deal. If we were to pivot just to think about kind of the revenue side and any cross-sell ability there from, say, treasury management or other services to the legacy Bank of Houston customer base, I mean, have those cross-sell efforts begun? And if so, when should we expect to see an uptick in the P&L?

I want to be a little bit realistic about that because I mean it takes a little while to get some of that stuff booked. But I mean, as far as the cross-sell aspect of it, I mean, it's very much we've already started that. And our team is -- they've been very, very focused on it in deploying those practices that we have. I mean we're really excited about it.

Look, Bank of Houston always had good offerings. But I mean, they were limited based on size on their ability to have the right kind of staffing and things like that to be able to go out and do what we've been fortunate enough to be successful with on our treasury and things like that.

So yes, I think you'll start seeing that. I mean, I think maybe fourth quarter, you might see a little bit more uptick. I mean you're already seeing some positive things if you look at noninterest income improvements on this quarter. But it becomes -- it continues to become more of our DNA on how we go about and approach treasury on each and every loan customer and relationship we have inside the bank.

Okay. And then maybe stepping back here, if we look beyond the integration of Bank of Houston, what do you view as the biggest driver of earnings growth over, call it, the next 2 to 3 years? Is that Houston expansion, lender hires, improving operating leverage, maybe another deal? I mean, what do you think the best way is to think about that?

I think you pretty much checked the boxes of kind of what we're focused on. We've been very, very open about the fact that we're open to another acquisition. But at the same time, organic growth is a strong driver for where we think that we can really make some strong impacts. I mean, lender hires, yes. I mean, we're not trying to put out too high of expectations on that, but our focus is really driven back to that right now. And we're seeing some improvement that's coming with that. I just think there's -- we have a lot of momentum going in each one of those different directions, and we feel really good about it.

Our next question is from the line of Woody Lay, KBW.

I wanted to start on the loan-to-deposit ratio. It feels like there's an opportunity to have some deposit remix just on the Bank of Houston side. But at the same time, it feels like we might see loan growth picking up pretty nicely here in the back half of the year. So I just wanted to get your thoughts on where you're comfortable running that loan-to-deposit ratio longer term.

Yes. This is Steve. So I would just say we've been kind of in the middle of our loan-to-deposit range that we like to be at. We definitely have room to run that up a little bit, but we don't -- 85%, I don't know if anybody wants to get up much higher than that. So we kind of -- it's just moved around in our desired range for a little bit kind of with the ceiling kind of what's happened over the last number of quarters and even a year or so.

So we can run that up a little bit, but that's also part of why we have some room to let some deposits run off. But again, it all plays into what does our loan growth look like. And so we just -- I don't feel comfortable when we try to make -- if we were try to make too big of a move on any one side, so we've got a little bit of room to run on that, but we don't want to get -- let loan-to-deposit get too high on the end of the range.

Woody, this is Curtis. Like Steve said, let me just do there that I think what you'll see is we'll probably move both sides of the fraction a little bit. Hopefully, the bulk of it will be through loan growth because we do have a great pipeline and quite a few things that are likely to come on in the latter half of the year.

But we knew going in, and we talked about it that we are fortunate right now to have a lot of on sheet balance liquidity -- on balance sheet liquidity at City Bank, and that gives us the flexibility to just let some of those higher cost deposits that were at BOH go away. And so you could see -- I don't know that we will because we've had really high -- higher deposit growth than we thought we would have.

But if that slows some, you might actually see deposit number drop off just a little. But it's a matter of still maintaining good customer relationships with those legacy customers coming out of BOH and being sure the people we want to keep and do business with. But a lot of the brokered funds and other things that are not core deposits, you could see those go away. And we'll do that definitely with maintaining or improving NIM as our target.

That's really helpful color. I appreciate you breaking it down. Maybe on the payoffs and you saw some elevated payoffs this quarter, which I think you had previously messaged we would see that on the last earnings call. I was just curious on what was driving that? Is it just normal course of business? I know in the past, you've run off some credits that maybe didn't fit the credit profile of your company. I was just curious on what drove the payoffs this quarter.

This is Brent, Woody. No, it was normal course of business. I mean we had -- none of this was kind of pushed out. It was just events. I mean, and what we're seeing in a lot of cases are sales of assets and our clients are getting gains off of those sales and taking advantage of that and plan to redeploy it.

And so we think there's opportunity there as well. But there's not one single thing driving it at this stage that we picked up on in the portfolio. It was up a little bit this quarter. But like I said, our production is picking up as well nicely and the pipeline is picking up. So I feel good about overcoming those.

Got it. And then maybe just last for me. I think as you mentioned, you remain interested in M&A. Just any updated thoughts on what an ideal target would look like to South Plains following the Bank of Houston acquisition?

No, Woody, I mean, we want to be in Texas and that we've been pretty open about that. We're just -- we're trying to look at something that we think is accretive that makes sense that we think would be a culture fit. One of the things that we were very focused on how we've handled this last transaction because we feel like that's going to be a pretty good example of how someone else is going to look at us and be comfortable going into a merger acquisition type with us. And it all really came together quite well.

Our team performed very, very good. So I mean, yes, we've got some areas that we probably wouldn't be -- we'll probably be a little bit more cautious about. But overall, the state of Texas is kind of where we're looking. And we're just looking for something that we think makes sense and it fits our culture and would be a nice complement to what we're trying to do.

At this time, I'll turn the floor back to Curtis Griffith for closing remarks.

Thank you, operator. Thanks, everyone, who joined us on our call today. To conclude, I'm very pleased with our second quarter results. We delivered strong profitability, maintained the credit quality of our loan portfolio, successfully completed the integration of Bank of Houston and continued to execute on the growth strategy that has driven our success for many years.

Just as importantly, we remain well positioned for the future with a strong balance sheet, a talented team and meaningful opportunities across our markets. Having spent more than 4 decades helping lead this organization, I'm incredibly proud of what we've built together. What began as a small community bank has grown into a premier banking franchise, serving customers across some of the most attractive markets in Texas.

I would like to especially thank our employees, both past and present, whose dedication, hard work and commitment to our customers have made South Plains what it is today. I would also like to thank our Board of Directors for their support and guidance over the years, our customers for the trust they place in us every day and our shareholders for their continued confidence in the company.

Most importantly, I'm extremely confident in the future of South Plains. We have a strong leadership team in place. I firmly believe Cory is the right person to lead the company into its next chapter of growth and success. While my role will be changing, I look forward to remaining actively involved as Chairman and supporting the team as we continue building on the foundation we've created together.

Thank you to all of you for joining us today and for your continued interest in South Plains Financial.

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

Good afternoon, ladies and gentlemen, and welcome to South Plains Financial, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead.

Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. 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.

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.

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. 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.

Turning to our M&A strategy and the Bank of Houston. We were pleased to complete our merger on April 1, 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. 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.

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.

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.

Thanks, Curtis, and hello, everyone. Starting on Slide 5, our loans held for investment decreased by $41 million to $3.1 billion in the first quarter 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 fourth quarter 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 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 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 multifamily loan that I just mentioned. 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 remain committed to being a Texas-focused community bank with experienced local bankers empowered 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. Importantly, South Plains occupies an 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 first quarter, which is typically a slower time for hiring.

Skipping ahead to Slide 11, we generated $11.3 million of noninterest income in the first quarter compared to $10.9 million in the linked quarter. 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.

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. For the first quarter, noninterest income was 21% of Bank revenues, essentially flat with the linked quarter. Continuing to grow our noninterest income remains a focus of our team.

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

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, 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. 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 nonaccrual loan interest recovery. 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 second quarter as customers make their annual tax payments. 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 before you factor in acquisition deposits.

Noninterest-bearing deposits modestly increased by $11 million in the first quarter 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. 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.

Turning to Slide 17, our 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. We recorded a $260,000 provision for credit losses, which are related to unfunded loan commitments in the first quarter, 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 a decrease of $4.8 million in nonperforming loans and a $460,000 decrease in loan net charge-offs.

Skipping ahead to Slide 19, our noninterest expense increased $2.5 million to $35.5 million in the first quarter 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 services expenses. There was approximately $1.5 million in acquisition-related expenses in the first quarter of 2026, of which $1.2 million was for professional services as compared to approximately $500,000 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.

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. Tangible book value per share increased to $29.65 as of March 31, 2026, compared to $29.05 as of December 31, 2025. The increase was primarily driven by $11.8 million in 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, 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 31, 2026, consolidated BOH had approximately $632 million of loans with a portfolio loan yield of 6.94% and $596 million of deposits, where noninterest-bearing deposits represented 16% of that total and interest-bearing deposits had a cost of 342 basis points. BOH had $15 million in borrowings and their NIM was 3.9%. BOH had $226,000 of noninterest income and their noninterest expense was $4 million 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, 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. Operator?

[Operator Instructions] Our first question is from Wood Lay with KBW.

The pro forma slide deck, 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 shrink a little bit. Could you just sort of walk through the repositioning went through? And it sounds like despite the smaller balance sheet, it doesn't impact the EPS accretion outlook.

Yes. Woody, this is Steve. 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 -- 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 -- time broker deposits did not get redone. So a little bit of back and forth on some of that with us working with them. So that started. We'll continue looking to optimize the balance sheet and seeing what -- the borrowings would be pretty easy when those come up, they're all short term on that. We'll continue to look at the noncore funding where we can and pare that back.

So -- but again, overall, like you said, there's not a huge impact to the net interest margin. It's -- 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 the end there, it would have been a little bit higher than that.

We've just been -- I mean, Steve and I 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. We're trying to be very, very thoughtful on how we manage the balance sheet and knowing that there may even be things on our balance sheet that we can eliminate as a result of stuff that sit here with us as they bring across. 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.

Yes. That's helpful color. And 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? And do you think that could still lead to some NIM expansion going forward?

I mean the opportunity is real. It's just, again, trying to balance the overall liquidity position we're at, what loan expectations -- loan growth expectations are, all of that. And just finding which -- who -- we don't want to run off -- we're not looking to lose customers. We're looking at the noncore type stuff. And the stuff that's easier, we will certainly do, but it's just going to be part of the overall plan. We want to do the best that we can and improve it if we can, but 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. But there's definitely some noncore sources that we can look at doing something with.

But the other thing that you've got to kind of keep in mind, they do a good job of pricing the loans on the other side. And -- what we're really trying to factor in is being prepared for the kind of demand that they kind of had to keep down just a little bit getting up to this because, I mean, look, there's no question, the liquidity 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 where we can be very beneficial with the purchase of this bank that we bought.

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. 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.

Woody, this is Curtis. And I just tell you in our last ALCO meeting, they already put together the list of the -- some of the broker deposits and other noncore funding sources 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. Now I'll be very clear about that. But as some of these higher cost things that are not core hit the dates we can, we'll just pay them off. So 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. So it's not going to be a radical improvement in overall deposit costs for us. But if you look at it on a BOH stand-alone basis of what they were formally, yes, we can make a pretty significant improvement in that.

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 stand-alone for South Plains. 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.

Yes, I'll start, and then I'll let Brent jump in. I mean, obviously, we have seen some of the loans that have repriced down with what the Fed did in the fourth quarter. But again, we still have -- continue to have loans that have been in the -- on the lower part that the fixed rate stuff from 3 to 5 years ago, that will -- that is continuing to help mitigate some of that. So that's been beneficial to us.

Yes. 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. But I'd say overall, yields are holding pretty well.

Woody, just go back on both sides of the balance sheet. As we said on every call that we do, we're still using exception-based pricing all the way through it. I mean, 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 are some opportunities out there that 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. So like I said, it's -- we are very focused on this on how this comes together, but really looking at the NIM more than anything.

Our next question is from Brett Rabatin with StoneX.

I wanted to just talk about the loan pipeline and you've added some more lenders and you're going to be over $5 billion bank here in 2Q. And just wanted to see, are any of these new lenders that you're adding in what you call specialized lines of business? 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?

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 fairway that we like to stay in. So there's -- so no, we're not getting into anything that's 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. And they blend nicely with the quality of the team that we already had in place. But yes, we're -- the thing that we like is it's bringing us opportunities to have new relationships that we would not have had, had we not done these hires that have come along. But these are -- I mean, we're very, very fortunate with the ones that we've done. But please note, we're not getting outside of our skis by any stretch.

Okay. That's helpful. And then just back on the cost of interest-bearing funds for Bank of Houston. I was looking at the regulatory data and saw that the cost was down like 12 basis points linked quarter to 3.46%. And that's obviously, I think, one of the key opportunities for the margin from here. Just competitively in Houston, what are you guys seeing on rate competition on deposits? And how much can you lower that over the coming quarters?

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 -- but I think the fact that we can manage 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. So I mean, we do see the benefits that are going to come with this. There's definitely room to improve the cost of funding in that portion of the portfolio.

Okay. And then maybe just lastly for me on mortgage banking. Obviously, a little noise with the servicing asset, but better than I would have expected given seasonality in 1Q and some higher interest rates. And I know mortgage is tough to predict, but maybe, Brent, any thoughts on what you see mortgage from here? And just -- it's obviously been a business you like, but it was down last year. Can it get back to '24 levels or better? Or just any thoughts on production and gain on sale margins?

Yes. This is Brent. I mean, look, mortgage is good business. We like it. But right now it's kind of the same song second or third, fourth, first quarter-over-quarter. We're doing well. We're not losing money at it. We're making money, but it's not the days you're talking about this robust. I think rates probably have to drop quite a bit to make a meaningful difference there.

So Brett, here's the thing -- we got to look at mortgage. Do we think we're setting the world higher? Absolutely not. Here's the thing that we're proud of. And I know that -- there's 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. And it's one we've been very, very focused on. 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. 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 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 3 or 4 years, if we sit here have been losing money every quarter on this, I don't know that we'd still be doing it. But 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, and we're very proud to be in this business because it's something that we want to be able to offer our clients.

Our next question is from Stephen Scouten with Piper Sandler.

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 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?

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 that kind of just run their cycle of life. I mean, from the time that we have them go out there and finance them, whether they're going to try to get it 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? I mean...

Yes, Stephen, we anticipated this. This is what we talked about in the fourth quarter. It was kind of baked in. And we think there's probably maybe one more that is stabilized. And these are credits that are looking for long-term fixed rate financing that we're just not going to do. But like the credit that they're performing, and this was kind of the plan all along from -- back from origination. So I'd say it's fully expected.

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 where it goes out, they can usually get some nonrecourse funding from some other arm that's out there that's not necessarily as traditional as what we are. 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 is that we're ready to turn around and find something to replace it if those things continue to cycle. And it's typically -- we're using some of the same relationships that are cycling some of this stuff on multiple occasions. So I mean -- and we're going to be careful with our whole limit. I mean we'd like to see this fall off and the next one come back on and just keep going.

Yes. 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 same clients that were successful achieving their long-term fixed rate goal.

Got it. Okay. Makes sense. So 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, there's maybe $200 million of incremental organic growth for the rest of the year, a pretty significant pace. Is that -- am I thinking about that correctly for the rest of the year?

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

Okay. Helpful. And then maybe lastly, I know it's still very early days here, but just in terms of BOH and the extraction of the synergies, kind of 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?

Here's what I see. 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 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 have converted and integrated everything about this inside of a quarter. And that's -- I mean, like we're going to do a conversion May 8. And our team has been very, very thoughtful. I mean we've had -- I mean, from [ 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. The other side of that is we've tried to make sure that we maintain very good communication and trying to onboard these people so that we can be successful.

Well, the last thing we want to do is come in here and not be successful in retaining the business that we have -- that they have that we really like. 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 want to lose it. So 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. I don't see that coming for us. I'm really intent where we are. I don't think any one of us would sit here and tell you that -- I don't think you could find buyers regret at any point in time with us right now at all.

Stephen, this is Curtis. And to be clear, this is not in the projections, 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. 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 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 start bringing those loans in. That's not going to happen overnight. I don't look for huge increases in Q2. But I do think that we will hit some targets in Q3, Q4 overall for the year because I think the business is there, and I think this team can go get it.

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. And 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 more challenging for them. And so yes, I do feel really good about it right now. But we're not taking anything for granted. We're very, very focused on it.

And what are you hearing -- last thing for 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 and kind of if that extends -- if the price of oil extends here around $100 for a longer period of time, would that have a kind of pronounced impact on those markets and potentially the loan growth targets?

I think there's a lot of them that are taking advantage of price oil if they're on that side of the deal. Nobody is going out there and trying to make long-term commitments on the price of oil being at that level. We're not seeing any of that with our customer base. They're pretty much -- everybody we talk to, they're all saying things like getting a less, and we're not going to get ourselves back to a corner on it. And Brent, you talked about -- I mean, from the deck of your underwriting, I mean, you don't factor that in at all.

Yes, we don't. We don't factor in. And 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.

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.

[Operator Instructions] Our next question is from Joe Yanchunis with Raymond James.

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. So 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 the March quarter? I'm just trying to understand what the jumping off point is.

No, that is just using our gross NIM. Just pushing the...

And then shifting over to loans. So can you talk about just a little more about your energy portfolio and what the exposure is on a pro forma basis? And what does loan demand look like in that vertical in the quarter?

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

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

Yes. We're still under 5% of the portfolio.

And then what about the -- 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 that exists in these markets, especially given the backdrop of your kind of aggressive lender hire approach?

Joe, 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. So 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, but our pipelines are very strong, particularly on a combined basis.

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. We had -- I mean we didn't had 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 anything -- of any significance that we've got identified that we need to separate from. And so I think we accomplished what we wanted to. We've identified the ones that we felt like that probably weren't prepared to move into higher rates from the cheaper stuff that they -- the way they got into it originally. I think we're kind of past that. I mean we're stressing the portfolio ever which way you can 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.

Okay. Then last one for 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. Just kind of wondering where are you seeing the best risk-adjusted returns across your portfolios right now?

Sorry, I couldn't hear you. Joe, what was your question?

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

Feeling secured.

I mean if you look at the -- I mean, the owner-occupied stuff, I mean, 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 in any stretch. Brent?

I agree. And -- to Cory's point, I mean, on our residential sides, we've got pretty good risk-adjusted yields there as well as the ag. Production still actually has good yields on the funded balances as it funds throughout the year.

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.

Thank you, operator, and thanks to everyone joining us on today's call. We are pleased with our first quarter performance reflects strong profitability, improving credit quality and continued discipline across our balance sheet. We've also successfully completed the Bank of Houston acquisition, a 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 long-term value for our shareholders while continuing to serve our customers and communities.

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.

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

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead.

Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. The related earnings press release and earnings slide deck presentation issued earlier today are available on the News & 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 those 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. 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.

Thank you, Steve, and good afternoon. I'm very pleased with the results that we delivered over the past quarter and the full year and would like to thank our employees for their hard work and commitment to Citi Bank and our customers. Their efforts are the key to our success, and they demonstrate every day the culture that we have developed over many years.

At South Plains, our core purpose is to use the power of relationships to help people succeed and live better. I believe that we're here to help enhance lives by creating a great place to work help people achieve their goals and invest generously in our communities because there is nothing more rewarding than helping people succeed and live better. This also helps us to attract the best employees, develop deep relationships with our customers and ultimately, deliver strong financial results for our shareholders.

This can be seen by our achievements for the full year of 2025, as outlined on Slide 4 of our presentation where we delivered a 17.8% increase in diluted earnings per share, loan growth in line with our guidance, 33 basis points of NIM expansion as our NIM was 4% for the fourth quarter. Tangible book value per share growth of more than 14% to $29.05, and as previously announced, we entered into a definitive agreement to acquire BOH Holdings and its banking subsidiary, Bank of Houston. While I am very proud of our results, I'm even more excited with the opportunities that I see ahead as we continue to execute our strategy to enhance our earnings.

It is focused on expanding our lending team across our high-growth Texas markets as well as pursuing accretive M&A opportunities. Through the past year, we made great strides on both initiatives, highlighted by our definitive agreement announcement in December to acquire Bank of Houston. As highlighted on page, on Slide 5, we believe Bank of Houston will complement our existing Houston team and bring both meaningful scale and deeply entrenched customer relationships to South Plains in one of the fastest-growing metropolitan markets in the country.

More importantly, the Bank of Houston team, led by [ Jim Stein ], holds similar values to those that we hold dear at South Plains, deep customer relationships, disciplined credit standards and a genuine focus on employees and communities. As we have consistently said on these calls, finding an acquisition partner with similar culture and values is a necessary factor to a successful merger, and I believe we found that in Bank of Houston. I'm looking forward to partnering with Jim, who will continue to lead his team once the merger is consummated, while also joining the boards of both South Plains and City Bank.

Jim will provide important continuity and leadership depth as we work to further scale our presence in the Houston market. Looking deeper into the Houston market, our existing team has worked hard to build a strong presence in Houston as our loan portfolio has grown at a 34% compound annual rate over the last 5 years. By bringing BOH into the South Plains family, we are projected to have more than $1 billion in loans in the Houston region, which is significant to us.

Importantly, both institutions share a focus on commercial real estate lending, a segment where Bank of Houston has built a high-quality portfolio and where Bank of Houston and City Bank's credit culture and underwriting discipline are closely aligned. We believe the merger is a good strategic fit with low execution risk and a platform that enables us to both deepen and expand our customer relationships.

Financially, this merger is also compelling, as we expect it to be approximately 11% accretive to our earnings in 2027 with an attractive tangible book value earn back of less than 3 years. We believe that BOH is a highly efficient, profitable company that has demonstrated consistent performance and that the transaction is structured to provide that we are very much aligned. I look forward to officially welcoming the Bank of Houston team when the merger is completed, which we expect to occur early in the second quarter of 2026.

While we expect BOH to be a tailwind to our growth. I'm also very encouraged with the progress we've made in recruiting talented lenders to South Plains as we continue to benefit from the dislocation that is occurring across our markets from the mergers that have taken place over the last 2 years which Cory will touch on. Taken together, we expect our loan growth to accelerate to a mid- to high single-digit growth rate in 2026 which should also drive a nice acceleration to the earning power of South Plains.

To conclude, we believe we are in a strong capital position that will allow us to benefit from many opportunities that we have in front of us. Given our capital position, we remain focused on 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. Last week, our Board of Directors authorized a $0.17 per share quarterly dividend which will be our 27th consecutive dividend. Now let me turn the call over to Cory.

Thank you, Curtis, and hello, everyone. Starting on Slide 6. Our loans held for investment increased by $91 million to $3.14 billion in the fourth quarter as compared to the linked quarter. The increase was primarily due to organic loan growth in multifamily property loans, direct [ energy ] loans and other commercial loans. I would note that our average loan balances were down slightly in the fourth quarter because the majority of our loan growth came on later in December, which should provide a lift to our net interest income in the first quarter.

Our yield on loans was 6.79% in the fourth quarter as compared to 6.92% in the linked quarter. It's important to point out that our loan yield was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to resolution of credit workouts. Additionally, our loan yield was also boosted by 23 basis points in the second quarter due to a $1.7 million interest recovery from the full repayment of a loan that had been on nonaccrual.

Excluding these onetime gains, our yield on loans was 6.84% in the third quarter and 6.76% in the second quarter, representing a relatively steady loan yield over the last 9 months. While we have not yet experienced a material impact to our loan yields from the series of [ FOMC ] 25 basis point reductions in their target interest rate in September through December, we do expect our loan yields to moderate in the quarters ahead.

That said, we remain optimistic that we can continue to reprice our deposits and manage our margin as market rates decline. Accelerating our loan growth has been our #1 strategic priority over the last year as we focus on expanding our lending platform. We've been selectively recruiting experienced lenders to City Bank across our growth markets while also benefiting from the dislocation created by our competitors' acquisitions. We ended the year having completed about 50% of our expected hiring occurring across our Dallas, Houston and Midland markets.

We expect our new lenders will bring the high-quality long-term customer relationships that they have built in their successful careers to South Plains, which we expect will drive an acceleration to our loan growth to the mid- to high single-digit range in 2026. In fact, we are already seeing an acceleration given the strong loan growth that we delivered in the fourth quarter as well as a nice pickup in our major metropolitan markets of Dallas, Houston and El Paso, where loans increased by $15 million or 5.8% annualized to $1.03 billion as outlined on Slide 8.

Given our thoughtful expansion in these markets, we expect loan activity to continue to improve and are also excited to close our pending merger with BOH, which will increase our scale in the high-growth Houston market. That said, we do still expect some headwinds in the first quarter of 2026 from several expected payoffs in our multifamily property portfolio.

Turning to Bank of Houston. [ Bank ] had approximately $772 million in assets, $633 million in loans and $629 million in deposits as of September 30, 2025, which will provide us with a substantially expanded platform in the Houston market. Importantly, Houston's Harris County was the #1 fastest-growing county in the U.S. in 2024 while also being the top relocation destination. The economy is dynamic, and we should see our commercial and private banking relationships expand across the Houston market.

More importantly, we took time to get to BOH's management team, employees and their culture. I personally spent time getting to know Jim Stein, and I really appreciate his philosophy for running Bank of Houston and quickly came to realize that our cultures were very similar. I can say that our banks would work well together that our teams were like-minded, which should minimize potential disruption and risk from the acquisition and its integration, even more comment on that today.

At South Plains, we built a great business in Houston with a strong team and BOH should nicely complement our growth strategy and provide important scale in a terrific market. Skipping to Slide 11. Our indirect auto loan portfolio totaled $241 million at the end of the fourth quarter, which is relatively unchanged as compared to $239 million at the end of the linked quarter. As we discussed on our third quarter call, we have been carefully managing this portfolio with a focus on maintaining its credit quality over the last 2 years, which has resulted in a decline in loan balances of $55 million since the third quarter of 2023 when the portfolio was $296 million.

Over this time period, we have seen competitors become more aggressive at the higher end of the credit spectrum while volumes have declined. More recently, we've tied our loan to value requirements to further ensure that we are proactively managing this portfolio in the current economic environment as well as any potential challenges to come. It's also important to highlight that this consumer portfolio comes primarily through auto dealers who are in our markets.

To further improve the transparency on this portfolio, given some of the challenges in the sector, we have updated our indirect auto disclosure. What you can see is that 94% of our current indirect auto portfolio was originated in the super prime or prime categories with an additional 5% originated in the near prime categories. This allows for normal credit deterioration to occur over time with the majority of the portfolio remaining super prime and prime.

In fact, from the origination to the end of the fourth quarter of 2025, we have experienced only modest deterioration with the portfolio now 87.7% super prime or prime with 5.6% near prime. The strong credit profiles of our consumer borrowers can further be seen in the credit metrics of this portfolio as our 30-plus days past due loans which totaled approximately $464,000 improved another 5 basis points to 19 basis points in the fourth quarter.

We continue to believe that our past due status is the best early indicator to any potential signs of credit stress in this portfolio and believe our tightened credit standards will further protect City Bank and the credit profile of our indirect auto portfolio as we look forward. Additionally, our net charge-offs for all consumer autos were approximately $382,000 for the quarter as compared to $160,000 in the third quarter.

Turning to Slide 12. We generated $10.9 million of noninterest income in the fourth quarter, which was relatively flat as compared to $11.2 million in the linked quarter, the modest decline from the third quarter was primarily due to $185,000 decrease in mortgage banking revenues, mainly due to the typical seasonal decline in mortgage volumes through the fourth quarter as can be seen on Slide 13.

Overall, we are pleased with our mortgage business is performing in the slow transaction and interest rate environment and believe we are well positioned for eventual upturn in volumes. For the fourth quarter, noninterest income was 20% of bank revenues essentially flat with the linked quarter. Continue to grow our noninterest income remains a focus of our team. I would now like to turn the call over to Steve.

Thanks, Cory. For the fourth quarter, diluted earnings per share were $0.90 compared to $0.96 from the linked quarter. This decrease was primarily a result of a larger provision for credit losses as we experienced strong loan growth in the quarter. [ So ] the majority of those new loans funded later in December, coupled with the onetime interest income items in the linked quarter.

Starting on Slide 15, net interest income was $43 million for the fourth quarter, in line with the third quarter's results. Our net interest margin calculated on a tax equivalent basis was 4% in the fourth quarter as compared to 4.05% in the linked quarter. As already mentioned, we had loan interest and fee items related to credit workout that positively impacted our NIM in both the third quarter and the second quarter of 2025. The third quarter impact was 6 basis points or $640,000, while the second quarter impact was 17 basis points or $1.7 million, excluding these onetime items in both periods, we delivered steady NIM expansion over the course of the past year. So that expansion slowed in the fourth quarter to just 1 basis point.

As outlined on Slide 16, deposits held steady from the linked quarter at $3.87 billion at the end of the fourth quarter, while we experienced strong growth over the full year with deposits rising $253 million or 7% from year-end 2024. Noninterest-bearing deposits modestly decreased by $26 million in the fourth quarter, which led to a slight decline in our noninterest-bearing deposits to total deposits ratio to 26.4% as compared to the linked quarter.

Importantly, we grew our noninterest-bearing deposits by $88 million for the full year 2025 and which drove a slight increase in our noninterest-bearing deposits to total deposits ratio as compared to year-end 2024. Our cost of deposits decreased by 9 basis points to 2.01% compared to the linked quarter as we have been repricing our deposit base lower following the FOMC series of 25 basis point reductions in September through December.

Looking forward, we expect a modest decline in our cost of funds in the first quarter given the Fed's most recent pet in December. Turning to Slide 18. Our ratio of allowance for credit losses to total loans held for investment was 1.44% at December 31, 2025, relatively stable from the end of the prior quarter. We recorded a $1.8 million provision for credit losses in the fourth quarter compared to $500,000 in the linked quarter. As I previously mentioned, the increase in provision was largely attributable to the strong loan growth that we delivered in the fourth quarter.

Skipping ahead to Slide 20. Our noninterest expense was $33 million in the fourth quarter, unchanged from the linked quarter. During the quarter, we had an increase of $1.1 million in professional service expenses related primarily to approximately $500,000 in acquisition-related expenses in addition to consulting on technology projects and other initiatives, which were largely offset by a decrease of $1 million in personnel expense. Looking to the first quarter, I would expect noninterest expense to trend modestly higher.

Moving to Slide 22. We remain well capitalized with tangible common equity to tangible assets of 10.61% at the end of the fourth quarter, an increase of 36 basis points from the end of the third quarter. Tangible book value per share increased to $29.05 as of December 31, 2025, and compared to $28.14 as of September 30, 2025. The increase was primarily driven by $12.7 million of net income after dividends paid and by an increase in accumulated other comprehensive income of $3.4 million.

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

[Operator Instructions] Our first question comes from Woody Lay with KBW.

Wanted to start on the NIM outlook. And I know if you adjust for some of those workout fees, NIM was relatively stable quarter-over-quarter. As you think about the strong growth you expect in 2026, do you think the NIM can remain relatively stable? Or is that higher growth going to come on at lower spreads and you could drive the NIM down a little bit?

Yes, I'll start Woody. This is Steve. I mean NIM outlook, I mean, you're exactly right. We do -- we want to have the loan growth and that should be helpful to us. We just know there's a lot of factors that go into it and I hate to say that we can expand it from where we're at. I mean there's still some loans repricing up from floors but there's some of the loans that were done fairly recently that -- or not recently, but in the last year or 2 that have come down with some of the Fed movement. So a lot of moving pieces. We're going to do our best to keep NIM in a similar place to where it is today.

But I mean, just given how much loan growth we can put on and any additional deposits we we may bring on, it will be a little tough, and there's just a lot of competition still out there and trying to match what or at least compete with what they're doing on the deposit side. Some of them are not coming down quite as fast on some of those funds. So all that being said, again, I don't know that expansion is where we'll be try to keep it where it is. But I mean, you could see a little bit of compression.

Woody, there's definitely going to be some exposure to some compression. We just got to -- we've got to see if we can be as good at managing the cost of deposits as we have been. But [ would ] be a little bit naive not to think that we had some pressures there.

Yes. And then how do you think about the deposit growth during the year? Because I know that you're expecting strong growth and then also with the pending BOH acquisition, they've got jumbo CDs as around 30% of deposits. So it would feel like you could flex your legacy markets a little bit on the deposit side. So how are you thinking about deposit growth throughout the year?

Woody, this is Curtis. And yes, you're hitting on the point there. I do think, and realize BOH has actually got pretty good NIM themselves right now. But we do believe that over time, we can reduce their deposit -- effectively the deposit cost of their deposit base as we kind of bring them into higher structure. That could kind of offset some of the other NIM pressures, but the big question is how fast can we do it?

Got it. And then just last for me, shifting to M&A, you put in the release that you're open to additional deals that look similar to [ BOEs ]. So would your preference be to add more scale in Houston? Are you looking all over the footprint. And just would you be comfortable announcing a deal with BOH pending? Or do you kind of need to see that deal close and get through integration first?

Woody, this is Cory. I think the first thing is look, we're not out trying to be a serial acquirer, and we're trying to be very thoughtful about what we're doing. And so for us to BOH is a perfect example. I mean we did a lot of study of BOH before we ever really started trying to reach out and figure out if there was something that really worked there. And that's the way we're approaching -- looking at all of these sites. We're not just dialing up so that everybody gets a phone call from us just to see what's happening. We're trying to be very thoughtful and very methodical.

Would we be afraid of something being announced in there? No, we would be afraid. But I mean, we're pretty thoughtful. And I think it's taken us this long since we did the last 1 that I think we've proven that we're not somebody that's just going to cheap from the hit. So I mean, Houston is a great market. We have no problem in the Houston market. Are we tied completely to only look in there? Absolutely not. It has to make sense.

The next question comes from Brett Rabatin with Hovde Group.

Wanted to talk a little bit about payoffs, which has been a topic that the slowed loan growth the past few quarters. It didn't seem like it did at all in 4Q. And so I was just curious if there if there were really no payoffs in the fourth quarter and then just the expectations, it sounds like you might have some in the first quarter. How are you guys thinking about net versus growth for '26 with this mid- to high single-digit growth expectations?

This is Brent. I'll kind of start by addressing your question on the payoffs. You're right, the fourth quarter was lighter on early payments than the prior quarters. And that did help the net growth number. We do think there are a few more that timing is uncertain, but we think they're going to see long-term fixed-rate financing.

And so we factored that into into our estimates for what we're hoping for on growth side. But it's hard to predict them all, but we've got a pretty good pretty good handle on the ones we think we'll ultimately see long-term fixed rate.

Brent, but I want to make 1 comment. This is Cory. I mean, we went through a period where we had some exits that we wanted to make. We're kind of past that. I mean we're going to have the normal -- I mean, give and take with between payoffs and fundings that are to come along. There's nothing that just like the ones we talked about that will be coming in the first quarter. There's nothing about those that are unexpected and they're kind of just following their life cycle of where they should be. I mean, we think that we've kind of got past the ones that where we felt like that we needed to do a separation from.

Okay. And then I appreciate the additional -- guys, I remember that really focused on your indirect auto book. I kind of felt like it was pretty high quality. But to give additional color, kind of made me curious about 1 topic in particular, the migration from origination to the small, pretty small piece, less than 4%, but the deep subprime credit of $9.2 million. How are you guys monitoring that? How do you see it going from wherever it was super prime or prime to that level?

Are you seeing customers that may have lost a job or how do they get to deep subprime? And then if they're not past due, what -- is it because their balances are higher or what's driven them to be a deep subprime credit?

Yes, this is Brent. What we found in our studies because we did study kind of some of the details and Oftentimes, it might have been a mispayment, it might have been even some small medical collection that really drove their score down. I don't think we kind of surprised student lending didn't have anything to do with it from what we saw, but definitely -- I mean, there's a part of that portfolio that their credit score increased. And then as part of that portfolio that their credit score declined and it's pretty marked on both sides.

So not too big of a surprise given everything you read about the consumer right now, and they're being a little bit of [ k shape ] the trends and -- but overall, we feel really good about the quality and feel good about our strategy of going into that higher credit score much heavier than probably most that are in this business into that higher credit score bucket to begin with, and it's kind of proven itself out. And the way I see it, the past due ratio is a pretty good indicator of the quality. We've got that portfolio. So.

And Brett, here's what we really hope to laying out of this because we did give you extra color. We've kind of set around and talked about the fact that we kind of get probably more color than we would normally do or probably normally should do. Here's what we really hope that you looked at and so there's -- it's still an incredibly good condition. I mean, it ends up being such a nonevent for our portfolio and the amount of exposure that you really can shake it all the way down to, we were really excited to put these numbers out there just so you can see how stable it really, really is.

Okay. That's helpful. Yes, I haven't really been worried about that piece of the book, but it's the color kind of made me curious about a few topics on it. So I appreciate the color on that.

We talked about that because we were moved -- I mean, still -- I mean, it's still so small in the whole scheme of things.

Yes. Last question for me. Just was hoping for -- I've had some other banks talk about getting maybe more aggressive with hiring some mortgage lenders, mortgage banking is 20% of revenue, which has been fairly consistent. How do you -- I know there's a rate component to this answer in terms of what happens from here. But are you guys doing anything different in mortgage? Do you want to develop that further in the coming quarters? And just any thoughts on fee income drivers, if not mortgage in '26.

Yes, I would tell you there's other question. We're trying to hire producers right now because it's all about the volume that's there. We've been very thoughtful in trying to make sure that we don't put out -- that we put this thing into a negative position. We've been trying to just tread water until it picks back up. Try to get -- trying to find good producers is probably what we're most focused on right now. We've kept our infrastructure in place, and we like that. So yes, we're still trying to hire some producers.

The next question comes from Joe Yanchunis with Raymond James.

So I was hoping to start with the Bank of Houston. How much revenue upside you see beyond the announced cost saves, particularly from cross-selling our balance sheet optimization.

Yes, that's a good question, Joe. I'll start and then let [indiscernible] up. I mean, we like where they're at. I mean, we do believe that there's some additional products that we can help bring to them. I don't know that there's at this point, this same thing we would love to try to quantify as to whether it's our wealth management area which would include trust services. I mean, we're going to push for those things. But as far as any of the modeling we did, that's not necessarily built into any of our numbers, but we will certainly try to push for bringing those type products to them.

Yes. I think -- look, I think Houston is a great bank, and we know that they've done a really good job up to this point. We do have a little bit more scale than they do. And so I think we'll be able to leverage some of the stuff that we have to help them. And quite frankly, I think [indiscernible] going to be 1 of the biggest ones that we'll be able to help them with.

They've done a good job if they're going to have funding that bank and it's based on what the theory that we've said about everything else we do. I mean, they've built strong relationships just like we try to do and go leverage them. We think that we can help them even more with what we have. But there's definitely some opportunities there. and we will try to take advantage of those.

I appreciate it. And I certainly understand revenue synergies not being baked into the model. Just trying to see or kind of get a sense for how much leverage there is within fee income from expanding to the starters in Houston. And then aside from the upcoming integration, are there any other technology investment priorities for 2026 you guys are looking at?

I would probably go a little bit -- I mean we're always doing something on technology, trying to make sure that we stay pretty relevant in that area. But I think 1 of the things that we're really trying to make sure of is that between -- we've got a [ Abrigo ] conversion that's coming up so that we can implement some better workflows and do some stuff on the credit credit side for the loan operations. But we're also focused on trying to make sure that we continue to enhance the credit side of the bank to make sure that we're prepared to bring on a bank that -- I mean, their average loan size is probably a little smaller than ours.

If you look at what they're doing, we've got to be smart. I mean, you hear about all these different acquisitions that come along and they kind of don't pan out like everybody thinks. Well, we've -- you've got to make sure that you're putting as much effort into embracing what they're doing so that we don't go scrip what they've already built. And we had done a lot of that. And if you go back to your other question about the different synergies and stuff that we can bring to the table.

You really don't know until you start getting there and meeting the quality of the talent and everything that they have. I think we're quite impressed with what we're seeing. And we see opportunities that make us very very pleased with the decision that we made to go into an acquisition with these guys. Jim has built and he's built a good team. And there's quite a bit of talent out there. And we think if you take some of the stuff that we have to offer and with the team that they have in place, I think that we can work well together.

That was very helpful. And I just have a couple of ticky-tack modeling questions here. Kind of starting off to piggyback off Woody's question on the NIM. Do you have a sense for what new loan yields were in the fourth quarter?

I mean, we're going to let you look that up. I mean, I think the by and large, have been in the mid-6s. And that's what I was going to say -- maybe a little bit higher, but mostly in the mid-6s.

I mean we kind of had to build in some of that stuff to try to make sure that people are seeing some of the rates coming down so that we could stay competitive. But I think we've done a pretty good job in locking some of that stuff in.

No, absolutely. That's high 6 is pretty good. And then lastly for me, I was hoping you could kind of disaggregate the $500,000 that you guys called out in acquisition-related expenses and the -- and then would you spend on consulting, is there a way to break that down to get more of a core number?

I don't know to break.

As far as the $500 million?

Correct. Correct.

Yes. I mean, the $500 million being the acquisition expenses, that's going to be in -- it's going to be in legal and professional services and then really really the -- the bulk of the remaining is going to be in -- A lot of it still in the professional services line item as we've got consultants going with us through some of the projects Cory was talking about. That's going to be several hundred thousand dollars that's in that line item.

Definitely think once we get through this year, we'll have a bit more expensive I mean those will go away.

Yes, we'll have -- yes, once those projects are done, I mean we may have a little bit -- we'll have some amortization expense coming on putting some of the items that are capitalized, but the consulting expenses will go away.

[Operator Instructions] Our next question comes from Stephen Scouten with Piper Sandler.

I'm curious from an expense perspective, I think, Steve, I think I heard you say maybe expect expenses to be up a little bit, modestly higher in the first quarter from the fourth quarter. But how do you think about full year expense build, and what sort of additional new hire activities kind of built into those expectations?

Yes. I mean full year. Well, let's back up for for '25, I mean noninterest expense, we did -- overall, pretty -- kept it pretty flat right around the $33 million a quarter. I mean we've got just normal salary adjustments that will kick in. We still got a little bit of the hiring initiatives Cory talked about as far as looking for some mortgage lenders but also loan producers on the commercial side as well.

So really just as far as the commercial lender side, kind of back to what the initial outlook was for that, we're about halfway through what we had originally planned. So there's still several folks we got added in for that. We do have -- again, some of these technology projects, we think we'll be getting towards the end of some of that additional expense, but we will see some of that some of the capitalization of a few of these projects, and I'll start kicking in as we get a little bit later on, maybe halfway through the year.

We were pretty thoughtful about the approach that we were taking on the hires that we were doing. We got about halfway through that. We'll continue on with that. I anticipate seeing another 1 or 2 in the first quarter. I think we'll kind of finish up the year like where we thought we would be.

But it's about 9 new lenders that we would -- over a 2-year period, that's what we thought we would do. And I think you couple that with the production team that we got with BOH coming on here in the early part of the second quarter. I think those will play nicely together. But expense-wise, keep in mind what we've always said is, I mean, we're chasing a 6 months or sooner breakeven point on any of the lenders that we're trying to hire.

Yes. No, for sure. And the expense management, to Steve's point year-over-year was really good. That's helpful. And then from a deposit beta perspective, if my math is right, it looks like total deposit betas for the for the hikes we see, I mean, for the cuts so far have been around the 30% range. Is that kind of the right way to think about deposit base moving forward? Or could that be more difficult just as deposit costs on an absolute basis move to the lower end?

It's probably the tad higher. We've got a number of the public funds that don't reprice until the first day of the month. So we that lags a little bit. So I mean it's probably closer to 35%, maybe not. But I mean, we're focused on on monitoring that and keeping it kind of consistent with those levels. If there's certain places we can do a little more, we will. If not, we'll we don't want to see a runoff on deposits in any area. So we just are trying to be mindful of what else we're seeing out there, but that's that's a close beta but maybe just a little bit low from what we actually would see.

Just keep in mind is what we've always said that we do. I mean we still do exception-based pricing -- we do it on both sides of the balance sheet and which tells you we're not afraid to make the cuts that we need to make, but we might have some adjustments that come back in there around a little bit of that. But we're pretty focused on trying to make sure we keep these costs down and so that we can protect our NIM as much as we possibly can. Okay.

And then maybe just last thing for me. The loan growth guidance is encouraging up there, mid- to high single digits. What gives you confidence kind of in that degree of ramp kind of from what has been the net growth over the last couple of years? Is it BOH? Is it the new hires? Is it just better customer demand or combination of all of the above, kind of -- any color you can give there would be

I think it's all of it. I mean, if you look at where BOH has been, I mean, let's be very realistic. I mean, the likelihood that we would even get an opportunity to have done something on each. If they had tons of liquidity. I mean, he has talent in place. I mean we were able -- that's 1 of the things we're able to bring to the table to help them augment their liquidity to some extent so that they don't have as much of a cap that they're having to deal with.

But you look at the hires we've done. I mean the organic growth is what we're as focused on our organic growth. Acquisition is nice, but we love the organic growth. And we love the team that we have in place and the team that we've assembled and the relationships that they've been able to build. One of the things we've been very upfront about is we've got a couple of projects and 1 of us is making sure that we keep the approval processes and everything working like it should, so that we continue to scale this company in a good but safe manner.

And a lot of that is making sure that -- I mean, we're timely, that we're responsive and that we can actually meet the needs that our customers actually have and the stuff that these lenders are trying to bring to the table. It is not just through an acquisition. It is definitely with some of the organic opportunities that I think we have on our own plate.

That's great. and congrats on a great end of 2025 there.

This now concludes our question-and-answer session. I would like to turn the call back over to Curtis Griffith for closing comments.

Thank you, operator. And thanks to everybody who participated in today's call. Concluding, we delivered some pretty strong results over the past year, while positioning South Plains for accelerating the growth in the year ahead. We've recruited outstanding lenders across our markets, and we believe they're going to bring new relationships to City Bank.

We also entered into a definitive agreement to acquire Bank of Houston which will provide important scale in the fast-growing Houston MSA. We've laid the foundation to be a larger community bank, which making -- includes making the necessary investments in technology, systems and processes to grow efficiently. We've accomplished much, but we're not standing still. We continue to look for other attractive franchises. We believe we have the capacity to acquire maybe another bank of a similar size range. but we will also selectively recruit high-quality lenders in our market. And as Cory just said, really push for organic growth. I'm very excited for what lies ahead for our employees, our customers and our shareholders. Thank you again for your time today.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.

Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference call is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead.

Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. With me here today are Curtis Griffith, our Chairman and CEO; Cory Newsom, our President; and Brent Bates, the bank's Chief Credit Officer. The related earnings press release and earnings presentation are available on the News and Events section of our website, spfi.bank.

Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied made during today's call are qualified by those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release and in the earnings presentation.

Curtis, let me hand it over to you.

Thank you, Steve, and good afternoon. As outlined on Slide 4 of our presentation, we delivered strong third quarter results, highlighted by solid earnings growth as we continue to experience net interest income expansion, supported by our low-cost community-based deposit franchise. The credit quality of our loan portfolio also continued to improve, and our return on assets markedly expanded.

Our results demonstrate the strong foundation that we have purposefully built. We've added exceptional talent across the bank while also making the necessary investments in our technology platform that positions South Plains to efficiently scale our operations as we grow. We have also built strong liquidity and capital while continuing to improve the asset quality of our loan portfolio. As a result, I believe the bank is firmly positioned to accelerate our asset growth through both organic growth and accretive M&A opportunities.

As Cory will expand upon, we continue to benefit from our competitors' acquisitions by attracting experienced lenders to the bank. We expect they will bring high-quality, long-term customer relationships they have built in their successful careers to South Plains. While we have been experiencing higher-than-normal loan paydowns, which has proved a headwind to loan growth, we expect an acceleration in growth next year through increasing our lending team by up to 20%. The investments that we've made in the bank, combined with the experience that we gained through the acquisition of West Texas State Bank also positions us to explore further acquisitions. Of note, we continue to engage in discussions with potential target banks in our core markets that we believe have the potential to fit our conservative nature and overall culture and meet our strict criteria for a deal.

As I have said on many of these calls, we are only interested in acquiring a bank that possesses these qualities and makes sense for us and our shareholders. Importantly, M&A is not the only option that we have to grow. Our organic growth initiative is just in the early innings, and we are optimistic that we will see a sharp acceleration in loan growth in the year ahead. As a result, we will only do a deal that makes sense for the bank and our shareholders, of which my family and I are the largest.

We believe that we are in a strong position to capitalize on opportunities to drive growth as the bank and the company each significantly exceed the minimum regulatory capital levels necessary to be deemed well capitalized. At September 30, 2025, our consolidated common equity Tier 1 risk-based capital ratio was 14.41%, and our Tier 1 leverage ratio was 12.37%. Given our capital position, we remain focused on both growing the bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. Last week, our Board of Directors authorized a $0.16 per share quarterly dividend, which will be our 26th consecutive dividend.

Now let me turn the call over to Cory.

Thank you, Curtis, and hello, everyone. Starting on Slide 5. Our loans held for investment decreased by $45.5 million to $3.05 billion in the third quarter as compared to the linked quarter. The decline was primarily due to a decrease of $46.5 million in multifamily property loans, mainly due to the payoff of 2 loans totaling $39.6 million. As Curtis mentioned and we have discussed on previous calls, we've been experiencing a heightened level of loan payoffs and paydowns through the year, which have been a headwind to loan growth. Looking forward, we expect level of paydowns and payoffs to moderate as we look to 2026. Our yield on loans was 6.92% in the third quarter as compared to 6.99% in the linked quarter. Our loan yield was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to the resolution of credit workouts.

As a reminder, our loan yield was also boosted by 23 basis points in the second quarter due to $1.7 million interest recovery from the full repayment of a loan that had been on nonaccrual. Excluding these onetime gains, our yield on loans was 6.84% in the third quarter and 6.76% in the second quarter, representing an increase of 8 basis points. Looking ahead, the impact to our loan yields from the FOMC's 25 basis point reduction in their benchmark interest rate in September was not material, though we do expect our loan yields to moderate. That said, we remain optimistic that we can continue to reprice our deposits and manage our margin as market rates decline. Importantly, our new loan production pipeline continues to remain solid and economic activity continues to be healthy.

As we discussed on our second quarter call, we have a strong position in each of the communities and metro markets where we do business and have capacity within our existing infrastructure to expand our lending platform. We're actively recruiting lenders who fit our culture to grow our lending capabilities as we work to accelerate our loan growth, which is a priority for our management team. We continue to be very pleased with the quality of bankers that we are speaking with who have an interest in joining South Plains.

We are also seeing dislocation from recent acquisitions in Texas, which is creating more opportunity to expand our platform. As Curtis touched on, our goal is to grow our lending platform by up to 20%, and we are more than halfway there, having added lenders in Houston and Midland since our last call. This builds on our success from the second quarter where we recruited several experienced lenders in our Dallas MSA. While loans in our major metropolitan markets of Dallas, Houston and El Paso held steady in the third quarter at $1.01 billion, as can be seen on Slide 7, we remain optimistic that loan growth will reaccelerate as we continue to add lenders across our metropolitan markets. At quarter end, our major metro loan portfolio represented 33.2% of our total loan portfolio.

Skipping to Slide 10. Our indirect auto loan portfolio totaled $239 million at the end of the third quarter, which is relatively unchanged as compared to $241 million at the end of the linked quarter. We've been carefully managing this portfolio with a focus on maintaining its credit quality over the last 2 years, which has resulted in a decline in loan balances of $57 million since the third quarter of 2023 when the portfolio was $296 million. Over this time period, we have seen competitors become more aggressive at the higher end of the credit spectrum while volumes have declined. More recently, we have tightened our loan-to-value requirements to further ensure that we are proactively managing this portfolio in the current environment as well as any potential challenges to come.

It is also important to highlight that we are primarily a lender through auto dealers to borrowers who are in our markets, 86% with super prime or prime credit ratings at origination. Our borrowers' strong credit profiles can further be seen in the credit metrics of this portfolio as our 30-plus days past due loans, which totaled approximately $575,000, improved 8 basis points to 24 basis points in the third quarter as compared to 32 basis points in the second quarter. At year-end 2024, our 30-plus days past due loans stood at 47 basis points. We believe our 30-plus past due loans are the best early indicator to any potential signs of credit stress in this portfolio and believe our tightened credit standards will further protect the bank and the credit profile of our indirect auto portfolio as we look forward.

Additionally, our net charge-offs for all consumer autos were approximately $160,000 for the quarter as compared to $350,000 in the linked quarter. Given the stable profile of our indirect portfolio, combined with the success that we are having adding lenders to the bank, we expect loan growth to gradually accelerate to a mid- to high single-digit rate through 2026. We expect our new hires to begin contributing to a loan growth in '26, while the level of payoffs begin to diminish. We also remain cautiously optimistic that economic growth across our Texas markets can remain resilient and provide a tailwind to growth.

Turning to Slide 11. We generated $11.2 million of noninterest income in the third quarter as compared to $12.2 million in the linked quarter. This was primarily due to a decrease of $1 million in mortgage banking revenues as can be seen on Slide 12. The decrease was mainly from a $769,000 quarter-over-quarter decline in the fair value adjustment of the mortgage servicing rights asset. Overall, our mortgage banking revenues have been relatively flat over the last 4 quarters given persistently high mortgage rates combined with low housing supply.

We are pleased with how the business is performing in this low transaction environment and the recent easing of market interest rates and believe we are well positioned for the eventual upturn in volumes as rates look set to decline further. For the third quarter, noninterest income was 21% of bank revenues, essentially flat with the linked quarter and the year ago 2024 third quarter. Continue to grow our noninterest income remains a focus of our team.

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

Thanks, Cory. For the third quarter, diluted earnings per share were $0.96 compared to $0.86 from the linked quarter. This increase is primarily a result of the reduction in provision for credit losses and increase in net interest income, which I'll cover, partially offset by the decrease in MSR fair value adjustment Cory mentioned. Starting on Slide 14. Net interest income was $43 million for the third quarter compared to $42.5 million in the linked quarter. Our net interest margin calculated on a tax equivalent basis was 4.05% in the third quarter as compared to 4.07% in the linked quarter.

As Cory touched on, we had loan interest and fee items related to specific credit workouts that positively impacted our NIM in both the third quarter and the second quarter. The third quarter impact was 6 basis points or $640,000, while the second quarter impact was 17 basis points or $1.7 million. Excluding these onetime items in both periods, our third quarter NIM increased by 9 basis points to 3.99% from the linked quarter.

As outlined on Slide 15, deposits increased by $142.2 million to $3.88 billion at the end of the third quarter due to organic growth in both retail and commercial deposits. The increase was predominantly noted in the loan market and follows the overall $53.6 million decline during the second quarter. Noninterest-bearing deposits increased $50.7 million in the third quarter. Additionally, our noninterest-bearing deposit to total deposit ratio increased to 27% in the third quarter from 26.7% in the linked quarter. The mix shift change in deposits along with the continued drop in CD rates contributed to the 4 basis point decline in our cost of deposits to 210 basis points in the third quarter, down from 214 basis points in the linked quarter.

Turning to Slide 17. Our classified loans decreased $21.1 million during the quarter. This includes the full collection of a $32 million multifamily property loan that had been talked about on prior calls. This is the second consecutive quarter with a positive resolution to a large previously classified and/or nonperforming loan that included full repayment of all amounts owed and shows our commitment to asset quality. Our ratio of allowance for credit losses to total loans held for investment was 1.45% at September 30, 2025, unchanged from the end of the prior quarter. We recorded a $500,000 provision for credit losses in the third quarter compared to $2.5 million in the linked quarter. The decrease in provision expense was largely attributable to a decrease in specific reserves, decreased loan balances and overall improved credit quality. I would note that we believe we continue to be well positioned for varying economic conditions.

Skipping ahead to Slide 19. Our noninterest expense was $33 million in the third quarter as compared to $33.5 million in the linked quarter. $519,000 decrease from the linked quarter was largely the result of a decrease of $581,000 in professional service expenses related primarily to consulting on technology projects and initiatives. On September 30, 2025, we redeemed $50 million in subordinated debt. The redemption was done in conjunction with the end of the initial 5-year fixed rate period as the debt was to begin floating quarterly at a higher interest rate. We made the decision to repay the debt given the higher rates, combined with our view that we can readily access the fixed income market if and when a need arises.

Moving to Slide 21. We remain well capitalized with tangible common equity to tangible assets of 10.25% at the end of the third quarter, an increase of 27 basis points from the end of the second quarter. Tangible book value per share increased to $28.14 as of September 30, 2025, compared to $26.70 as of June 30, 2025. The increase was primarily driven by $13.7 million of net income after dividends paid and by an increase in accumulated other comprehensive income of $9.1 million.

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

[Operator Instructions]

Our first question is from Joe Yanchunis with Raymond James.

So you discussed your plan to increase your lending team by up to 20% next year. And that follows a relatively rapid pace of hires over the past couple of years. I guess how much of that growth is coming from true lenders versus support staff? And for context, can you tell us how many lenders we should use as a base to go off this growth?

Yes. Nothing -- I think from the base is probably about 40. And as far as -- none of that includes support staff. That's all production. And I would say -- and based on the 20% that we're talking about, we've probably already achieved north of 10% so far this year.

We're partway to that.

And are there any particular markets that you can highlight where that growth has either come from or where you're expecting that growth to come from?

Yes. Permian, Houston and definitely in the Dallas area.

Okay. So shifting gears here, and I apologize, I only heard most of your comments on your indirect auto portfolio. And I certainly understand your great past due ratios and low charge-off activity. However, I noticed in your deck, your concentration of subprime and deep prime indirect loans increased pretty materially. Can you talk about that?

Repeat part of that. I didn't hear part of what you said.

Yes. It looks like there was an increase in subprime and deep subprime kind of concentration in that portfolio.

I mean I don't see that. We haven't had much of it.

Yes. Joe, this is Steve. I'll start with that. And I'll have to say the -- this is showing -- while it says on the deck, it's showing the category at origination. The numbers that actually got put in are updated information, so it's not as of origination date, which it normally is. I think we did not grab the consistent data we've been providing. This is really more updated and shows some changes in what's going on with borrower credit scores. And that is -- so that's why it does look different than what you've seen before.

Got it. Okay. That's helpful. And then lastly for me, just kind of a modeling question. Based on that $50 million of sub debt you guys redeemed, what was the incremental cost associated with that? If you happen to have that.

Well, I mean, the $50 million, we were paying $4.5 million, and it would have been going up to $8 million.

No, I was wondering about any expenses that you incurred in the P&L from redeeming that. Yes, just to kind of try to understand the true run rate.

Yes. And I may not be understanding. I mean, there was no expense to redeem it. It was at the end of the call period.

If that's what you're wondering. We didn't go outside of the call period. We had the opportunity. The window opened and we took it.

Our next question is from Woody Lay with KBW.

I wanted to follow up on the hiring initiative. You did a similar initiative back in 2021, and I believe it was pretty successful. So could you talk about your kind of previous experience being aggressive on the hiring front and how you're translating those past experiences to what you're doing now in the market?

Yes. So if you go back to that time frame, we were fairly aggressive in hiring those. But if you also remember, we had a fair number of retirees that were coming around in the near term after that. And so we were as equally focused on making sure we were prepared to replace those as we were trying to increase our team at the same time. That's not the case today. We're just -- I mean, we feel like that we're in a position to continue to take advantage of some really good opportunities and for us to be able to expand in those markets. And the way we look at those, whenever we model one, we model to a breakeven in 6 months or less. And that's what we stay pretty well focused on to make sure that's how we do it.

But if you still go back to the hiring process, it's pretty rigorous trying to make sure that we find a credit culture fit and a culture fit that fits into who we are. So it's quite an undertaking, but one that we're quite proud of and have had great success.

Yes. And then I believe you all said you are about 50% the way through there, but it doesn't feel like we've seen a huge expense impact from that. Is it fair to -- I guess, just how should we think about the expense growth rate from here given the additional hires you expect?

Steve, you're usually on cleanup on me for stuff like that. But I mean, these guys are covering the way as we go on this. So the expense run hasn't been that bad. I mean it's from a net perspective. But Steve, what would you?

Yes. I mean it will increase. It's increased a little bit as we've gone. I mean it hadn't all -- everybody hadn't all hit at one time has been spread out. And so that's -- again, I would expect overall noninterest expense to modestly increase.

We've kind of taken the approach that this is the kind of money we're quite proud to be spending and having the increases on.

And remember that a significant part of the compensation will be in their ICP packages, and that won't get paid out until well into next year, even for the ones that are bringing the business on.

Yes. And maybe just last for me on M&A. You all sound a little bit more optimistic on the M&A front than maybe previous quarters. I know you are very stringent on who you look at and who would make a good target for you all. So could you just remind us sort of go down the checklist and what makes a good target for South Plains?

I'm going to lead it off. It's number one, got to be a culture fit. And we've got to make sure that this is somebody that we think that we could go achieve success with long term. And the numbers have got to line up. There's no question. And I'll let Curtis talk a little bit further about this, but we're as focused on culture as anything that you can find because that's where we've seen more of the train breaks that really come from.

Yes. If we can't integrate the acquired banks successfully, then this is not good for anybody, not good for their customers, not good for our shareholders. So as Cory says, that's really what we focus on. But we also want to focus on successful banks, ones that are doing a good job with what they're doing, that have built some customer loyalty that they have -- again, and this is all part of the culture, but have that mindset among their employees that they're not there short timers for things. They're there for the long haul, and we want to just transition them over to be working for us. And that's the kind of group that we look for. And it's got to -- the numbers have to work.

And right now, I think we're seeing out there in the marketplace, lots of activity. And it's interesting that it's coming at a time when bank stocks really aren't doing all that well. We're certainly not leading the market by any means. So a lot of the acquirers, including us, don't have a big multiple to play with. So you've also really got to look at someone that is looking at joining us up, joining with us as an investor to be there for the long pool, and they ultimately benefit, their shareholders ultimately benefit through the long-term growth in our stock. So it's a combination. And it's -- I think we are going to see some activity. I really do. We're looking at some very promising situations right now.

Woody, both of your questions are kind of funny because they're kind of tied together. Typically, unless there's disruption involved, we're not hiring lenders or employees that are looking for a job. We look for contentment. I think the same thing goes as we look for an acquisition. There's a difference between somebody who may want to sell and somebody who has to sell, and we're much more focused on somebody who might want to sell.

Yes. That makes total sense.

Our next question is from Stephen Scouten with Piper Sandler.

I'll see if you've gotten tired of asking -- answering questions about these new hires yet. When you bring these guys on, I know, Cory, you said think about like a 6-month breakeven. Are you guys targeting any specific kind of segment of lender like C&I versus CRE currently? And then ultimately, how big of a book of business do you anticipate each one of these people bringing over? Is it kind of -- is it a $50 kind of million book over time? Or what's the right way to frame up the potential of each kind of hire as you see it at a high level?

So Woody -- I mean, to me, Stephen. We're mean I would say a good portion of these are -- I mean, there's still going to be CRE or real estate. I mean, portfolios as a general rule, I mean, we like the C&I when we can get it, but I mean we've never hit from the fact that we're a real estate bank and a lot of that stuff ties together. But if you -- I will just tell you this, I can't -- we've never gone out and hired somebody to see what portion of their book they could bring. We want to know what their abilities have been and how they generate business. And we really -- typically, we will hire them under the impression they not bring anything. But the people that we're hiring are carrying portfolios that might run anywhere from $75 million to $300 million to $400 million. And I mean, these guys have very good -- we're looking at people that have the capacity to go out and produce and have been very successful for long periods of time before they've ever joined our organization.

So I would just tell you that I'm probably pretty conservative when I give you those numbers right there.

Okay. That's helpful. And just the ones -- I mean, if I'm doing the math kind of roughly right, it sounds like maybe you got 4 or 5 more lenders to add to get to this 20%. And the 4 or 5 maybe that you've already added that comprises the 10% already, what have they done so far? What kind of build have you seen in those people over -- I don't know what length of time that's been when you've added them, but over the duration of time that you've added them?

I think you have to factor in that you're probably on the longest of 2 quarters in place as opposed to some that have been a little bit shorter than that. So I mean, I'm not prepared really to, I guess, rattle off any numbers because I didn't kind of expect that one. Are we seeing nice good-sized transactions coming across the table? Absolutely. Absolutely. I would venture to say I can't think of one that's not already breakeven.

So most of them have been there under -- it's all under 6 months. It sounds like maybe a lot of 3 months. So it's all been relatively recent. Got it. And then maybe going back on -- sorry.

So typically, a lot of these people that you'll bring on, they may have a nonsolicit for a period of time on the front end. So it's getting where they are and the new business that they're chasing that doesn't conflict with anything they might have already had in agreements in place. So we're pretty careful about all of that stuff. So that's -- I mean, what we see is their overall ability and what we see probably in the first 6 months are probably a little bit different.

Got it. Helpful. And then maybe this one will be for Steve. I'm kind of curious on where you think like a good starting point is for the NIM next quarter. Obviously, there's a lot of puts and takes there with the recovery. I guess maybe starting from that 3.99% net of the recovery, but then I assume it looks like you're paying the sub debt off with existing liquidity. So I assume there'll be some NIM benefit there and then rate cuts. So if there's maybe a starting point you think about for fourth quarter as a jumping off point?

Yes. No, that's a good question. I mean we -- as you said, there are lots of puts and takes. I mean that's -- we did show for, if you will, a 9 basis point increase, but the Fed movement just only occurred right at the end of the quarter and with a couple more scheduled. That's I'm going to say I don't necessarily foresee us increasing NIM. I mean, we could a basis point or 2 or it could decline a couple of basis points. In the short term, again, we've got some -- I think we've talked about before, some of our public funds that they are tied to an index, but they do -- they may lag until the following month or something like that where they will catch up.

But it's -- we've done good. I think in the immediate term, it may -- you may see a slight decline in NIM until everything kind of works through the system. We're able to reprice deposits the way we need to. And you still have some loans coming off of low rates as they hit a 3- or 5-year mark. So again, like I said, lots of puts and takes, but that range is not a bad spot.

Okay. That's helpful. And maybe one last one for me. Just kind of going back to the indirect auto, and I hear what you're saying, Cory, losses obviously haven't really been material this quarter or in the past. But that data of credit scores and the migration, even though I know it's not apples-to-apples in the quarter-over-quarter presentation of it, but it does obviously show a migration of credit scores downwards. I mean, does that concern you at all? Or is that kind of part of why you guys have been pulling back a little bit in indirect auto? Or maybe any more color you can give about that credit score migration and what that maybe means for the consumer part of your book?

Yes. This is Brent. We have done kind of a study on -- typically once a year where we pull scores on the whole portfolio, soft scores on the whole portfolio. And what we're seeing is both this year and in last year, we saw some migration in the bottom half of those credit scores migrating downward. All through those 24 months, we really haven't seen delinquencies rise or other credit issues that would cause some concern.

But it is something we actively monitor just like all other areas of credit risk where we're diligently looking for potential issues.

And average duration on these loans ends up being, what, a little over 2 years. So it's...

Pretty.

We just stayed so focused on the upper portion of that growing the higher-end stuff on the portfolio that we want to be very, very careful with it.

Stephen, it is very true all across the country, the folks kind of on the lower end, life is getting harder. It's getting tight out there, and you're seeing it in all kinds of areas. And I worry about that some just from the overall economy. The good news for us is, yes, we do have some of those, but we have very few of those. So we're not immune to some of our people having some credit problems. But so far, it just hasn't impacted us on any meaningful losses. And we don't think it will because so much of that portfolio is much higher credit scores.

Yes. And go back and keep in mind one thing. I mean, if you put the dollar amount to it, you're still looking at less than $20 million that is in subprime or deep subprime in the whole portfolio, less than 2% of that is in non-autos, which would be in any type of an RV or something like that. We just don't get out into some of that stuff that's a little bit questionable. We're very, very careful about what we're going to put on our books.

Yes. Yes. No, that makes sense. And I guess at the end of the day, if the past dues are still good, maybe they're not paying their credit card, but they're continuing to pay their auto payment to make sure they got some way to get to work and the like.

And that's what we've seen [indiscernible] years. I mean they'll pay for the car when [indiscernible] sometimes they may miss on something else.

[Operator Instructions]

Our next question is from Brett Rabatin with the Hovde Group.

I wanted to go back to payoffs. And I know that's been a topic for some quarters now, and you guys are optimistic. Obviously, all this hiring is going to help drive origination activity. To what extent does the commercial real estate book look vulnerable to the curve here to the permanent market, just given a dip here recently in rates. Does that concern you guys at all about continued payoffs maybe in the CRE book, just given where rates are?

Yes. This is Brent. I'll address that. I do think we're -- we still have some that are scheduled. We expect to have scheduled payoffs of some projects that are complete and stabilized into the first quarter, maybe second. So it's kind of a normal course a little bit. I mean I think what you've seen a little bit of in the past 6 months or so has been just partly efforts of identifying potential credit issues and resolving those and that put a little pressure on loan balances.

But we will have some additional payments coming at us, we think, in the first and second quarter of next year, maybe a little earlier.

And we were just looking over looking at our multifamily, it's down about $100 million over the last 3 quarters. If you take that $100 million and you try to reconcile it just a little bit, over half of that was the 2 credits that we told the whole world, we were exited. It did not matter. we exited without any loss or anything else, but we didn't feel like it was what we wanted on our balance sheet.

But you take another 25% of that and it went into a nontraditional bank lender that let them take a P&I loan back to interest only. We're not doing that stuff. And so there's a little bit of that stuff that we're not lowering our credit standards to keep something on our books. We'll go out there and find new business to continue to replace it with, but we will not lower credit standards just because we're afraid of something is going to pay off.

Here's the bigger one in all of that. I think in nearly every aspect of even what we've talked about, all those loans were at below market rates. We were okay they left. And so not all headwinds that come with some paydowns are necessarily a bad thing, especially if you were in a situation that you had some stuff that was back in the 4% or 5% rates that you don't really -- I mean, it's not something you really want to have on the books.

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

Thank you, operator. Thank you to all of those that participated on today's call. To conclude, we do believe our third quarter results demonstrate a strong financial position as well as growing earnings power and capital of the bank. While delivering our strong earnings growth, we've been making necessary investments to expand our capabilities, position South Plains to be a much larger company. Our growth will come from our strategic initiative focused on reaccelerating organic loan growth while seeking to expand South Plains through accretive M&A opportunities.

We've continued to add experienced lenders all across our markets to expand our lending platform and increase our loan growth through 2026. We also continue to engage in discussions with potential acquisition candidates and are pleased with the opportunities we're evaluating. Fortunately, the organic loan growth initiative is also just in the early innings. We're optimistic we'll see that growth in the year ahead. As a result, we're only going to do a deal that makes sense for the bank and our shareholders. Taken together, we believe we're in a good position to deliver on our initiatives and drive value for our shareholders as we work to accelerate the growth of South Plains Financial.

Thank you again for your time today.

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