South Plains Financial's Q1 2025: Navigating Contradictions in Deposit Costs and Loan Yields

Deposit cost reduction and margin expansion perspectives, loan yield and margin expansion expectations, deposit cost and funding strategy, deposit cost trends, and loan yield and margin expansion expectations are the key contradictions discussed in South Plains Financial's latest 2025Q1 earnings call.



Deposit Growth and Cost Reduction:
- South Plains Financial reported a $171.6 million increase in deposits, reaching $3.79 billion at the end of Q1 2025.
- The cost of deposits decreased to 219 basis points from 229 basis points, demonstrating a notable decline.
- The improvement was due to a full quarter of re-pricing interest-bearing deposits following reductions in short-term interest rates by the Federal Reserve.

Loan Growth and Credit Quality:
- Loans held for investment increased by $20.8 million, marking a 2.7% annualized growth to $3.08 billion by the end of Q1 2025.
- The credit quality of the loan portfolio improved, with the non-performing assets to total assets ratio declining to 16 basis points.
- This was attributed to conservative credit management and proactive approaches, leading to a more stable portfolio.

Net Interest Margin Expansion:
- South Plains Financial's net interest margin increased to 3.81% in Q1 2025, up from 3.75% in the linked quarter.
- This expansion was primarily due to a 10 basis point decline in the cost of deposits, driven by re-pricing of interest-bearing deposits.
- The bank's strong liquidity position and effective management of deposit costs contributed to this favorable trend.

Mortgage Banking and Fee Income:
- Non-interest income for the first quarter was $10.6 million, down from $13.3 million in the linked quarter.
- The decrease was largely due to a $3 million decline in mortgage banking revenues, particularly from the fair value adjustment of mortgage servicing rights.
- The company is proactive in selective hiring to position itself for a potential recovery in the residential housing cycle, aiming to maintain profitability while expanding non-interest income.