South Plains Financial and the Overhyped M&A Narrative

In the ever-shifting landscape of banking, few narratives capture investor imagination as effectively as the promise of mergers and acquisitions (M&A). South Plains Financial (SPFI), a regional bank with a strong track record of organic growth and capital discipline, has recently found itself at the center of such speculation. However, a closer examination of its financial performance and strategic priorities suggests that the M&A enthusiasm may be overdone—and that SPFI's intrinsic strengths offer a more compelling path for long-term value creation.

Organic Growth: A Quiet Force

SPFI's second-quarter 2025 results underscore its ability to expand without relying on external transactions. Net income rose to $14.6 million, a 19% increase from the prior quarter and a 32% jump year-over-year. This growth is driven by a $3.10 billion loan portfolio, which grew organically despite the payoff of $49.1 million in multi-family property loans. The bank's net interest margin (NIM) improved to 4.07%, reflecting a disciplined approach to asset-liability management and a recovery of $1.7 million in interest—a testament to its operational agility.

The bank's deposit base, now $3.74 billion, has grown 3.2% year-over-year, with noninterest-bearing deposits accounting for 26.7% of the total. This low-cost funding source is a critical advantage in a rising-rate environment, enabling SPFI to expand its lending platform without sacrificing profitability.

Capital Strength: A Foundation for Flexibility

SPFI's capital position is nothing short of robust. At June 30, 2025, its common equity tier 1 risk-based capital ratio stood at 13.86%, and its tier 1 leverage ratio at 12.12%—both well above regulatory minimums. These figures indicate a bank that is not only resilient but also capable of funding growth through internal resources.

This capital strength provides SPFI with flexibility: it can return value to shareholders via dividends and buybacks (its tangible book value per share rose to $26.70 in Q2 2025) while reinvesting in its core business. For example, the bank has actively recruited experienced commercial lenders in the Dallas market, a strategic move to boost loan production and deepen customer relationships. Such initiatives, rooted in organic growth, are more sustainable than the often-chaotic integration of acquired assets.

M&A: A Strategic Option, Not a Necessity

While SPFI's management has not ruled out M&A, its approach is characterized by caution and selectivity. Chairman and CEO Curtis Griffith emphasized that the bank is “not in a rush” and will pursue acquisitions only when they align with its culture, asset profile, and valuation expectations. This contrasts sharply with the M&A frenzy that has swept the industry in recent years, where some institutions have prioritized scale over strategic fit.

The recent acquisition of Veritex by Huntington Bancshares, for instance, highlights the potential for value creation in a favorable regulatory climate. However, SPFI's leadership has made it clear that it will not compromise its standards for the sake of growth. As President Corey Newsome noted, “We can be patient given the organic opportunities.” This philosophy is a strength, not a limitation.

The Overhyped Narrative: A Caution for Investors

The enthusiasm for SPFI's M&A potential risks overshadowing its fundamentals. The bank's return on average assets (ROAA) of 1.34% in Q2 2025—up from 1.07% a year earlier—demonstrates its ability to generate returns without external deals. Meanwhile, its nonperforming assets ratio of 0.25% (down from 0.57% in Q2 2024) and low net charge-offs of 0.06% highlight a credit portfolio that is both high-quality and resilient.

Investors should also consider SPFI's valuation. At a price-to-tangible-book ratio of approximately 1.3x (based on Q2 data), the stock is trading at a discount to peers like Umpqua Holdings and Hancock Financial, which trade at 1.5x–1.7x. This suggests that the market is underappreciating SPFI's capital strength and organic growth trajectory.

Conclusion: A Bank Built to Last

South Plains Financial's recent performance illustrates a rare combination of organic momentum and capital discipline. While the M&A narrative may be tempting, it is not a prerequisite for SPFI's success. The bank's ability to grow its loan portfolio, expand its deposit base, and maintain a strong credit profile without external transactions is a powerful endorsement of its management's strategy.

For investors, this presents a clear opportunity: to back a bank that prioritizes long-term value creation over short-term speculation. SPFI's cautious approach to M&A is not a sign of weakness but a reflection of its confidence in its own growth engine. In a sector often prone to overhyped narratives, SPFI offers a refreshing counterpoint—proving that sometimes, the most compelling stories are the ones told by the fundamentals.