[Management View]
South Plains Financial reported strong financial performance in Q2 2025, driven by margin expansion, improved credit quality, and steady capital ratios. Management emphasized a conservative approach to loan growth amid heightened paydown activity and reaffirmed its focus on organic growth and selective M&A opportunities. Strategic priorities include expanding lending capabilities, enhancing treasury management solutions, and recruiting experienced lenders to support future growth.

[Outlook]
Management expects loan growth to be flat to low single digits in Q3 2025, with full-year growth trending to the lower end of the low to mid-single-digit range. The company remains cautiously optimistic about economic resilience in Texas markets and is actively pursuing M&A opportunities, though valuation expectations and cultural fit remain key considerations. Efforts to expand noninterest-bearing deposits and improve loan origination systems are expected to support long-term growth.

[Financial Performance]
- Loans Held for Investment: Increased by $23.1 million (3% annualized) to $3.1 billion, offset by $49.1 million in multifamily loan payoffs.
- Yield on Loans: 6.99% (including a one-time benefit); excluding the benefit, yield was 6.76%, up 9 basis points sequentially.
- Net Interest Margin (NIM): 4.07%, up from 3.81% in Q1; excluding the one-time gain, NIM was 3.9%.
- Noninterest Income: Rose to $12.2 million from $10.6 million, driven by a $1.4 million fair value increase in mortgage servicing rights.
- Diluted EPS: $0.86, up from $0.72 in Q1, including a one-time benefit of $0.09 per share.
- Deposits: Decreased by $53.6 million to $3.74 billion due to seasonal public fund outflows; noninterest-bearing deposits increased $32.3 million.
- Provision for Credit Losses: $2.5 million, driven by increased specific reserves and credit downgrades.
- Tangible Book Value per Share: Increased to $26.70 from $26.05.

[Q&A Highlights]
Question 1: Can you provide more color on the loan pipeline and growth outlook for 2025?
Answer: Management expects flat to low single-digit loan growth for the remainder of 2025 due to higher repayments. However, new lender hires are expected to drive growth to mid-to-high single digits post-2025. The company remains focused on balancing loan and deposit growth.

Question 2: How does the hiring strategy align with potential M&A activity?
Answer: Management confirmed that hiring efforts will continue regardless of M&A opportunities. The focus is on relationship banking and growing deposits alongside loans. M&A remains a complementary strategy, with strict criteria for cultural fit and valuation.

Question 3: What drove the increase in specific reserves during the quarter?
Answer: The increase was due to a few smaller loans entering non-accrual status, with no specific reserve tied to the larger multifamily loan payoff. Management took a conservative approach to provisioning.

Question 4: What is the outlook for net interest margin (NIM) and deposit costs?
Answer: NIM is expected to expand modestly, supported by repricing CDs and exception-based pricing strategies. Deposit costs are trending lower, but significant changes depend on Fed rate movements.

Question 5: How does the current M&A environment look, and what are the impediments?
Answer: Valuation expectations and cultural fit are the main impediments. Management is actively reviewing opportunities but remains patient, given organic growth potential. The regulatory environment has improved, which may accelerate deal activity.

Question 6: What is the outlook for mortgage banking performance?
Answer: Mortgage banking remains flat but profitable. Management has retained infrastructure to capitalize on rate movements when they occur.

Question 7: Can you provide details on loan yields and new production rates?
Answer: New loans are coming on at low 7% to high 6% rates, with fee collection efforts. Repricing of existing loans is expected to support yield expansion.

Question 8: What drove the growth in noninterest-bearing deposits?
Answer: Growth was attributed to maturing treasury management solutions and better integration of deposit growth with loan origination. Existing customer relationships also contributed.

Question 9: How does the hiring strategy impact expenses?
Answer: Hiring will increase expenses in the short term but is seen as essential for growth. Management is selective in recruiting lenders who align with the company’s culture and credit standards.

Question 10: What is the strategy behind hiring in Dallas and other metro markets?
Answer: Hiring in Dallas is not directly tied to loan balance contraction but aims to capitalize on opportunities to bring in high-quality talent. The focus is on strategic expansion across all markets.

[Sentiment Analysis]
Management maintained a confident and optimistic tone, emphasizing strategic growth initiatives and resilience in the face of economic headwinds. Analysts were constructive but focused on clarifying loan growth challenges, margin outlook, and M&A strategy.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Change |
|-------------------------------|-----------------|-----------------|-----------------|
| Loans Held for Investment | $3.1 billion | $3.08 billion | +$23.1 million |
| Yield on Loans | 6.99% | 6.67% | +32 basis points|
| Net Interest Margin (NIM) | 4.07% | 3.81% | +26 basis points|
| Noninterest Income | $12.2 million | $10.6 million | +$1.6 million |
| Diluted EPS | $0.86 | $0.72 | +$0.14 |
| Deposits | $3.74 billion | $3.79 billion | -$53.6 million |
| Tangible Book Value per Share | $26.70 | $26.05 | +$0.65 |

[Risks and Concerns]
1. Elevated loan payoffs continue to pose a headwind to loan growth, particularly in metro markets.
2. Tariff-related consumer behavior may impact indirect auto loan production.
3. M&A opportunities are constrained by valuation expectations and cultural fit.
4. Expense growth from hiring and infrastructure investments may pressure near-term profitability.

[Final Takeaway]
South Plains Financial delivered solid Q2 2025 results, marked by margin expansion, improved credit quality, and higher earnings per share. While loan growth faces challenges from elevated paydowns, management is actively addressing these through strategic hiring and treasury management improvements. The company remains well-capitalized, providing flexibility for both organic and inorganic growth. M&A opportunities are being explored cautiously, with a focus on shareholder value. Overall, South Plains is positioned to navigate near-term headwinds while building a foundation for long-term growth.