South Plains Financial (SPFI) Q2 FY26 earnings call: guidance and Q&A

What is the outlook for the forward NIM, and how will managing BOH's brokered CDs and cost of funds impact it? Was any of this work done in Q2 or is it mostly ahead?

Management confirmed some work was done in Q2, but most optimization of BOH's cost of funds is ahead, particularly with brokered CDs as they mature. They paid off BOH's Federal Home Loan Bank borrowings and expect to see improvement in Q3, aiming to bring BOH's cost of funds in line with historical levels. The overall goal is to maintain NIM in the current range.

“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.”

asked by Brett Rabatin · answered by Steven Crockett

Given the expected expense savings of 25% or $4.6 million from the BOH deal, will expenses come down in Q3?

Management expects expenses to decline in Q3, with Q2 being the high mark due to acquisition-related and conversion expenses. They were able to accelerate some expense reductions due to the early conversion of BOH onto their system.

“Yes. We should start seeing that decline a little bit... 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.”

asked by Brett Rabatin · answered by Steven Crockett

Will loan paydowns moderate in the second half of the year, and has the commercial pipeline continued to build since quarter-end, indicating changes in customer demand?

Management feels confident about growth prospects for the second half, citing an increase in bankers (from acquisition and hiring) and a strong pipeline. Despite Q2 paydowns and the 'noise' of the BOH conversion, they maintained decent loan positions. With the conversion complete, they expect to better offset future paydowns.

“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.”

asked by Joseph Yanchunis · answered by Brent Bates

Have cross-sell efforts, particularly for treasury management, begun with legacy Bank of Houston customers, and when should an uptick in the P&L be expected?

Cross-sell efforts have very much begun, with teams focused on deploying practices. While an immediate significant P&L uptick might take time to book, some positive signs are already visible in Q2 noninterest income improvements. A more noticeable uptick is anticipated in Q4, as BOH previously had limitations in staffing for treasury services.

“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.”

asked by Joseph Yanchunis · answered by Cory Newsom

What is viewed as the biggest driver of earnings growth over the next 2-3 years: Houston expansion, lender hires, improving operating leverage, or another deal?

Management confirmed that all mentioned factors are key areas of focus. They are open to another acquisition but emphasize organic growth as a strong driver, with lender hires showing improvement. They feel they have significant momentum across these different directions.

“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.”

asked by Joseph Yanchunis · answered by Cory Newsom

What is the comfortable long-term loan-to-deposit ratio, considering deposit remix opportunities from BOH and expected loan growth?

The company is currently in the middle of its desired loan-to-deposit ratio range and has room to increase it, but does not want to exceed 85%. They expect to move both sides of the fraction, primarily through loan growth. They have sufficient on-balance sheet liquidity to allow higher-cost BOH deposits to run off, which might cause a slight dip in total deposits, but this will be managed to maintain customer relationships and improve NIM.

“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.”

asked by Woody Lay · answered by Steven Crockett

What specifically drove the elevated loan payoffs observed this quarter?

The elevated payoffs were due to the normal course of business, not pushed out or related to credit profile issues. They were driven by events such as clients selling assets, realizing gains, and planning to redeploy capital. While payoffs were up slightly this quarter, production and pipeline are also increasing, which is expected to offset them.

“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.”

asked by Woody Lay · answered by Brent Bates