South Plains Financial (SPFI) Q3 2025: Deposit Growth Surges $142M, Lending Platform Set for 20% Expansion
South Plains Financial’s third quarter centered on robust deposit inflows and a strategic ramp in lending talent, as management placed clear emphasis on building the foundation for accelerated loan growth in 2026. While loan balances declined due to multifamily paydowns, the bank’s expanding team and disciplined credit culture position it to capitalize on both organic and M&A-driven opportunities. With asset quality improving and capital levels high, SPFI is prioritizing prudent growth and shareholder returns amid a shifting Texas banking landscape.
Summary
- Deposit Inflows Rebound: Organic retail and commercial deposits drove a sharp turnaround in funding capacity.
- Lending Team Expansion: Strategic hires target a 20% increase in production capacity, supporting future loan growth acceleration.
- Balance Sheet Strength: Elevated capital ratios and asset quality set the stage for selective M&A and continued dividend payouts.
Performance Analysis
SPFI’s Q3 results reflected a business in transition, balancing near-term loan contraction with foundational investments in growth. Loans held for investment declined by $45.5 million to $3.05 billion, primarily due to large multifamily payoffs, a headwind that management expects to moderate as new hires ramp. Despite the loan decline, net interest income rose to $43 million, supported by a stable net interest margin (NIM) of 4.05% (or 3.99% excluding one-time workout gains), as deposit costs were managed down and loan yields held up.
Deposit growth stood out as a key positive, with balances rising $142.2 million to $3.88 billion, reversing the previous quarter’s decline. Noninterest-bearing deposits increased to 27% of total deposits, reflecting SPFI’s community bank franchise strength. Non-interest income, at $11.2 million, remained stable as mortgage banking revenues faced continued pressure from high rates and low housing supply. On the expense side, non-interest expense fell slightly to $33 million, aided by lower professional services costs as technology initiatives matured.
- Credit Quality Advances: Classified loans dropped by $21.1 million, driven by full repayment of a large multifamily credit, while the allowance ratio remained steady at 1.45%.
- Indirect Auto Portfolio Stability: Indirect auto outstandings held steady, with 86% of borrowers rated prime or super-prime at origination and past-due rates improving to 24 basis points.
- Capital Ratios Strengthen: CET1 ratio reached 14.41% and tangible common equity to assets rose to 10.25%, supporting both growth and shareholder returns.
Overall, the quarter showcased SPFI’s ability to fund growth, maintain credit discipline, and build earnings power even as near-term loan balances contracted.
Executive Commentary
"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."
Curtis Griffith, Chairman and CEO
"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 mixed shift change in deposits along with the continued drop in CD rates contributed to the four basis point decline in our cost of deposits."
Steve Crockett, Chief Financial Officer and Treasurer
Strategic Positioning
1. Lending Platform Expansion
SPFI is executing an aggressive hiring initiative, targeting a 20% increase in its lending team—focused entirely on production roles, not support staff. As of Q3, the bank has already achieved over half of this goal, with new hires in key Texas markets including Houston, Midland, and Dallas. Management expects these new lenders, many drawn from competitors amid market dislocation, to drive loan growth acceleration from 2026 onward.
2. Disciplined Credit and Portfolio Management
Credit quality remains a central pillar, with management actively managing down exposures in segments not aligned with its risk appetite. Notably, multifamily balances have declined by $100 million over three quarters, with over half from the exit of two large credits the bank deemed non-core. The auto portfolio is tightly managed, with tightened loan-to-value requirements and a focus on prime borrowers, minimizing exposure to subprime risk.
3. Capital Allocation and Shareholder Returns
SPFI’s capital position is a strategic asset, enabling simultaneous growth and capital return. The bank redeemed $50 million in subordinated debt as the fixed rate period ended, avoiding a jump in interest expense. Management continues its 26-quarter dividend streak and maintains a share buyback program, balancing growth investments with consistent shareholder payouts.
4. Selective M&A Readiness
While organic growth is the priority, SPFI remains actively engaged in M&A discussions, but with strict criteria. Leadership emphasized that only targets with a strong culture fit, demonstrated operational success, and long-term orientation will be considered—underscoring a disciplined approach that avoids integration risk and protects shareholder value.
Key Considerations
SPFI’s third quarter marks a critical inflection point as the bank transitions from managing loan paydowns to preparing for accelerated growth. Investors should weigh the following:
Key Considerations:
- Funding Strength: Deposit inflows, especially noninterest-bearing, provide low-cost funding to support future loan growth as new hires ramp up production.
- Loan Growth Trajectory: Near-term loan balances may remain pressured, but management’s hiring pipeline and market expansion suggest a sharp reacceleration in 2026.
- Credit Discipline: Proactive exits from non-core credits and tightened auto lending standards position the bank defensively amid broader credit migration trends.
- Expense Management: Incremental hiring costs have been offset by lender productivity, with compensation structures designed to align payouts with performance.
- M&A Optionality: High capital ratios and a conservative deal filter provide flexibility, but management signals that organic growth is the default path unless a compelling target emerges.
Risks
Key risks include continued loan paydowns, especially in commercial real estate, which may delay the anticipated inflection in loan growth. Broader economic headwinds, including consumer credit stress and competitive deposit pricing, could pressure margins and asset quality. M&A integration risk remains if a deal materializes, though management’s disciplined approach mitigates this to some extent. Investors should also monitor the impact of further rate cuts on loan yields and NIM.
Forward Outlook
For Q4 2025, South Plains Financial management guided to:
- Moderating loan payoffs and a gradual pickup in loan growth as new lenders come online
- Stable to modestly lower net interest margin as deposit repricing and loan mix adjust to the rate environment
For full-year 2025, management maintained a focus on:
- Mid to high single-digit loan growth target for 2026 as the expanded lending team reaches full productivity
Management highlighted several factors that will shape results:
- Continued resilience in Texas market economic activity supporting loan demand
- Ongoing evaluation of M&A opportunities, but only if strict cultural and financial criteria are met
Takeaways
SPFI’s Q3 results highlight a bank in strategic transition, leveraging deposit franchise strength and disciplined credit management to build capacity for the next phase of growth.
- Deposit Growth Outpaces Peers: The $142 million deposit surge underpins future lending and margin stability, especially as new hires begin to deliver production.
- Loan Growth Inflection Expected in 2026: While loan balances fell this quarter, management’s targeted hiring and market expansion suggest a strong ramp in origination next year.
- Watch for M&A and Organic Growth Balance: Investors should track the pace of lender onboarding, payoff moderation, and any movement on the M&A front as key drivers of the 2026 outlook.
Conclusion
South Plains Financial delivered a quarter defined by strong funding growth, prudent credit management, and foundational investments in talent. With capital levels high and asset quality improving, the bank is positioned to accelerate loan growth and pursue selective M&A, but remains disciplined in execution. The coming quarters will test the bank’s ability to convert its expanded platform into sustainable, profitable growth.
Industry Read-Through
SPFI’s experience this quarter reflects broader themes in regional banking: deposit gathering is once again a differentiator, especially for community banks with local franchise strength. The strategic focus on lender hiring amid market dislocation signals continued talent churn and consolidation in Texas banking. Credit discipline, especially in multifamily and indirect auto, is increasingly critical as credit migration and consumer stress rise—suggesting that banks with proactive risk management will outperform. Finally, the selective approach to M&A and capital allocation underscores the premium on prudent growth and cultural fit in a volatile sector.