South Plains Financial Inc.

Company Overview

Business Model: South Plains Financial, Inc. is a bank holding company operating primarily through its wholly-owned banking subsidiary, City Bank. The company provides a comprehensive suite of commercial and consumer financial services, including commercial and retail banking, investment, trust, and mortgage services, to small and medium-sized businesses and individuals. Revenue is primarily generated through net interest income from loans and investment securities, supplemented by noninterest income from mortgage banking activities, service charges on deposit accounts, bank card services, investment commissions, and fiduciary fees.

Market Position: City Bank is positioned as one of the largest independent banks in West Texas. The company operates 24 full-service banking locations and 7 loan production offices across seven distinct geographic markets, primarily in Texas (Lubbock/South Plains, Dallas, El Paso, Greater Houston, Bryan/College Station, The Permian Basin) and Ruidoso, New Mexico. The company's strategy focuses on building long-lasting customer relationships, delivering high-quality products and services, and becoming the community bank of choice in its markets.

Recent Strategic Developments:

• Acquisition of BOH Holdings, Inc.: On December 1, 2025, South Plains Financial, Inc. entered into an Agreement and Plan of Reorganization to acquire BOH Holdings, Inc. through a merger. Immediately following, Bank of Houston, a wholly-owned subsidiary of BOH Holdings, Inc., will merge into City Bank. As of December 31, 2025, BOH Holdings, Inc. had $745.1 million in assets, $624.5 million in total gross loans, and $603.0 million in deposits. The transaction, valued at approximately $105.9 million (based on November 28, 2025 stock price), is expected to close in the second quarter of 2026, subject to regulatory and shareholder approvals.
• Sale of Windmark Insurance Agency, Inc.: On April 1, 2023, South Plains Financial, Inc. completed the sale of its wholly-owned subsidiary, Windmark Insurance Agency, Inc., to Alliant Insurance Services, Inc. for an aggregate purchase price of $36.1 million, realizing a pre-tax gain of $33.8 million.

Geographic Footprint: South Plains Financial, Inc. maintains a significant presence across Texas and New Mexico:

• Texas: Lubbock/South Plains (10 branches, $2.5 billion deposits), Dallas (3 branches, $496.5 million deposits, 5 mortgage offices), El Paso (2 branches, $229.4 million deposits, 1 mortgage office), Greater Houston (1 branch, $52.8 million deposits), Bryan/College Station (1 branch, $56.1 million deposits), and The Permian Basin (6 branches, $361.3 million deposits).
• New Mexico: Ruidoso (1 branch, $200.5 million deposits).
• Additional mortgage loan production offices are located in Abilene, Arlington, Austin, Dallas, Dripping Springs, Forney, Fort Worth, Grand Prairie, Houston, Midland, Southlake, and Waco, Texas.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Net Interest Margin: 3.98% (2025)
• Operating Margin: 35.0% (2025)
• Net Margin (Return on Average Assets): 1.33% (2025)
• Efficiency Ratio: 62.32% (2025)

Investment in Growth:

• R&D Expenditure: Not explicitly disclosed as a separate line item. However, IT and data services expense was $4.7 million (2.2% of total revenue) and Marketing and development expense was $4.0 million (1.9% of total revenue) in 2025.
• Capital Expenditures: $5.7 million (2025) for purchases of premises and equipment.
• Strategic Investments: The pending acquisition of BOH Holdings, Inc. is valued at approximately $105.9 million.

Business Segment Analysis

South Plains Financial, Inc. operates as a single reportable operating segment, "banking," which aggregates all community banking services and branch locations. Management evaluates financial performance and allocates resources on a Company-wide basis.

Banking Operations

Financial Performance (2025 vs 2024):

• Revenue (Net Interest Income + Noninterest Income): $211.9 million (+8.5% YoY)
• Operating Income (Income before income taxes): $74.1 million (+17.1% YoY)
• Net Income: $58.5 million (+17.7% YoY)
• Return on Average Assets: 1.33% (vs 1.17% in 2024)
• Return on Average Stockholders' Equity: 12.70% (vs 11.75% in 2024)
• Net Interest Margin: 3.98% (vs 3.65% in 2024)
• Efficiency Ratio: 62.32% (vs 65.07% in 2024)
• Provision for Credit Losses: $5.2 million (vs $4.3 million in 2024)

Product Portfolio:

• Lending: Offers a diversified portfolio including commercial real estate, commercial (specialized and general), consumer (1-4 family residential, auto, other), and construction loans.
• Deposits: Provides a variety of deposit products such as demand deposit accounts, interest-bearing products, savings accounts, and certificates of deposit.
• Services: Includes mortgage banking, trust services (estate administration, 401(k) plans, IRAs), and investment services (mutual funds, annuities, stocks, bonds, municipal bonds) through Raymond James Financial Services, Inc.

Key Growth Drivers:

• Net Interest Income: Increased by $19.9 million (+13.5%) in 2025, driven by an $8.9 million increase in loan interest income (due to 2.9% growth in average loans and a 22 basis point increase in loan yield) and an $8.8 million decrease in interest expense (primarily from a 42 basis point decrease in rates paid on interest-bearing liabilities).
• Loan Growth: Loans held for investment increased by $89.4 million (+2.9%) to $3.14 billion in 2025, with organic growth across the portfolio, partially offset by a decrease in multi-family property loans.
• Deposit Growth: Total deposits increased by $253.2 million (+7.0%) to $3.87 billion in 2025, reflecting organic growth in both commercial and retail, noninterest-bearing and interest-bearing accounts.

Market Dynamics:

• Competitive Positioning: Operates in a highly competitive financial services industry, competing with various financial institutions. The company differentiates itself through a broad suite of financial solutions, high-quality customer service, a positive reputation, and long-standing community relationships.
• Customer Types: Focuses on serving small and medium-sized businesses and individuals.
• Credit Concentrations: 71.6% of the loan portfolio is secured by real property, with diversification across property types and geographic locations within its service areas. Concentration limits are established and monitored for various loan types.

Loan Portfolio Breakdown (as of December 31, 2025):

• Commercial Real Estate: $1.06 billion (33.8% of total loans)
• Commercial - Specialized: $409.4 million (13.0% of total loans)
• Commercial - General: $659.3 million (21.0% of total loans)
• Consumer (1-4 family residential, auto, other): $911.1 million (29.0% of total loans)
• Construction: $100.1 million (3.2% of total loans)

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $8.5 million (259,046 shares) in 2025.
• Dividend Payments: $10.1 million in 2025, with a total dividend of $0.62 per common share.
• Dividend Yield: Not explicitly stated.
• Future Capital Return Commitments: A new stock repurchase program was approved on February 21, 2025, authorizing up to $15.0 million in common stock repurchases.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $552.4 million
• Total Debt: $60.5 million
• Net Cash Position: $491.9 million
• Credit Rating: Not disclosed.
• Debt Maturity Profile:
  • Subordinated debt: $14.1 million, maturing December 2030, with a weighted average fixed rate of 6.41% for the first seven years, then floating at Wall Street Journal prime rate (4.0% floor, 7.5% ceiling).
  • Junior subordinated deferrable interest debentures: $46.4 million, with maturities in 2034, 2035, and 2037, bearing floating rates tied to 3-month CME Term SOFR plus basis points.

Cash Flow Generation (2025):

• Operating Cash Flow: $77.5 million
• Free Cash Flow: $71.8 million
• Cash Conversion Metrics: Not explicitly detailed.

Operational Excellence

Production & Service Model: South Plains Financial, Inc. operates with a service-driven, relationship-based, and business-focused credit culture. The company maintains asset quality through local market knowledge, long-term customer relationships, consistent underwriting, and a conservative credit culture. It leverages digital reporting tools to enhance the efficiency of its mortgage underwriting process, boost loan production, and improve overall margins.

Supply Chain Architecture: Key Suppliers & Partners: The company relies on a number of third-party service providers for critical functions, including core systems processing, essential web hosting and other internet systems, online banking services, and deposit processing. Technology Partners: Raymond James Financial Services, Inc. is a key partner for providing a variety of investment services to customers.

Facility Network:

• Manufacturing: Not applicable (banking services).
• Research & Development: Not explicitly detailed as separate facilities.
• Distribution: The company operates 24 full-service banking locations and 7 loan production offices (mortgage offices) strategically located across its markets in Texas and New Mexico. The corporate offices are located in Lubbock, Texas.

Operational Metrics:

• Employee Headcount: 603 total employees (545 full-time, 58 part-time) as of December 31, 2025.
• New Mexico Loan-to-Deposit Ratio: 31.2% as of December 31, 2025.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: The company utilizes its network of 24 full-service banking locations and 7 loan production offices for direct customer engagement and sales.
• Digital Platforms: Employs mobile and online banking services to reach and serve customers.
• Channel Partners: Investment services are offered through Raymond James Financial Services, Inc. Customer Portfolio: Enterprise Customers: The company primarily serves small and medium-sized businesses, alongside individual customers.
• Customer Concentration: As of December 31, 2025, the 20 largest deposit relationships constituted approximately 22.3% of total deposits. The 20 largest borrowing relationships represented 21.0% of total outstanding commitments, totaling approximately $775.0 million. Geographic Revenue Distribution: The company's operations and customer base are concentrated in Texas (Lubbock/South Plains, Dallas, El Paso, Greater Houston, Bryan/College Station, The Permian Basin) and Ruidoso, New Mexico.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The banking and financial services industry is highly competitive, characterized by rapid technological change and frequent introductions of new products and services. Competition arises from a diverse range of entities, including local, regional, and national commercial banks, credit unions, mortgage companies, trust companies, brokerage firms, consumer finance companies, mutual funds, securities firms, third-party payment processors, and financial technology companies. Many competitors possess greater financial resources and are subject to fewer regulatory constraints.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The filing does not name specific direct competitors but notes competition from a wide range of financial institutions including local, regional, and national commercial banks and credit unions, as well as various non-bank financial service providers.

Emerging Competitive Threats: The company identifies emerging threats from financial technology companies and alternative banking sources.

Competitive Response Strategy: South Plains Financial, Inc. aims to compete successfully by offering a broad suite of financial solutions, fostering a high-quality customer service culture, maintaining a positive reputation, and leveraging its long-standing community relationships.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: The company is highly sensitive to market interest rate movements, which can significantly affect net interest income, asset and liability values, and the availability and cost of capital or liquidity. The ongoing inflationary environment and potential for recession in the U.S. and its market areas pose risks to loan demand, borrower repayment ability, and collateral values. Technology Disruption: The financial services industry is undergoing rapid technological change. The company faces the risk of not effectively or timely implementing new technology-driven products and services, potentially falling behind competitors with greater resources. Customer Concentration: The 20 largest deposit relationships account for approximately 22.3% of total deposits, and the 20 largest borrowing relationships represent 21.0% of total outstanding commitments. Significant withdrawals or defaults from these concentrated relationships could adversely impact liquidity and credit quality.

Operational & Execution Risks

Supply Chain Vulnerabilities: Heavy reliance on third-party service providers for core systems processing, web hosting, online banking, and deposit processing exposes the company to operational interruptions if these providers experience difficulties or terminate services. Cybersecurity Risks: The company faces cybersecurity threats to its internet-based systems, online commerce security, and information systems, including those hosted by third-party partners. Such incidents could lead to data loss, operational disruption, fraud, reputational damage, and increased costs. Talent Management: The company's success is highly dependent on its management team. The unexpected loss of key officers or the inability to attract and retain qualified personnel could adversely affect operations and growth strategies. Data & Modeling Dependence: Decision-making relies on statistical and quantitative models (e.g., for stress testing, interest rate sensitivity, anti-money laundering). Faulty data or flawed modeling approaches could lead to suboptimal decisions or regulatory scrutiny.

Financial & Regulatory Risks

Credit Risk: As a lender, the company is exposed to the risk that loan customers may not repay their obligations, and collateral may be insufficient to cover outstanding balances. This risk is particularly pronounced in commercial, real estate (71.6% of loans secured by real property), indirect dealer, small-to-medium business, agricultural, and energy loan portfolios. Liquidity & Funding Risk: The company's ability to fund operations and meet obligations relies on generating deposits and managing asset/liability maturities. Factors affecting deposit levels (e.g., competitive pressures, market interest rates, lack of consumer confidence) could increase reliance on more expensive and less stable wholesale funding sources. Regulatory & Compliance Risks: The company operates in a highly regulated environment, subject to extensive federal and state banking laws and regulations (e.g., Basel III, CRA, BSA, USA PATRIOT Act, HMDA, UDAAP). Non-compliance, even inadvertent, can result in restrictions, fines, penalties, and reputational harm. Capital Requirements: The company and City Bank must maintain specific regulatory capital levels (e.g., Basel III ratios, "well-capitalized" status). Failure to meet these requirements could impact growth, funding costs, dividend payments, and acquisition capabilities.

Geopolitical & External Risks

Geographic Dependencies: The concentration of business activities and credit exposure in Texas and New Mexico makes the company vulnerable to adverse economic, political, or business developments specific to these regions, including downturns in real estate, agriculture, or the oil and gas industry, and natural disasters. Trade Relations: Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, could negatively impact the costs, demand for products, and financial results of the company's customers, thereby affecting their ability to service debt.

Innovation & Technology Leadership

Research & Development Focus: While South Plains Financial, Inc. does not disclose specific R&D expenditures, it actively leverages technology to enhance its operations. The company utilizes digital reporting tools to improve the efficiency of its mortgage underwriting process, increase loan production, and boost overall margins. It also acknowledges the rising cost of technology services and increasing customer adoption of digital services, indicating ongoing investment in IT infrastructure and digital capabilities.

Intellectual Property Portfolio: Not explicitly mentioned in the filing.

Technology Partnerships: The company relies on third-party service providers for core banking systems, web hosting, online banking, and deposit processing. It also partners with Raymond James Financial Services, Inc. for investment offerings.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The company's success is significantly influenced by its ability to retain existing senior management and attract qualified additional senior and middle management.

Board Composition: The Bank's audit committee is composed entirely of independent directors. The Board receives annual reports on the Information Security Program and its effectiveness, and other cyber-related issues are brought to its attention as needed.

Human Capital Strategy

Workforce Composition (as of December 31, 2025):

• Total Employees: 603
• Geographic Distribution: Not explicitly detailed for employees, but operations span Texas and New Mexico.
• Skill Mix: The workforce is described as dynamic and collaborative, with diverse backgrounds, skills, and experiences.

Talent Management: Acquisition & Retention: The company employs a comprehensive approach to talent management, including mid-year and annual performance conversations, ongoing training, internally developed growth and leadership programs, and a robust mentorship program. It prioritizes career advancement through promotion and internal transfers. The company offers a well-rounded compensation package, including competitive salaries, an annual bonus program, and a robust benefits package (company-matched 401(k) Plan, healthcare, insurance, health savings and flexible spending accounts, long-term care and long-term disability benefits, life insurance benefits, a wellness program, and paid-time off). Retention Metrics: Approximately 33% of the current staff have been with the company for ten years or more, indicating strong employee loyalty.

Diversity & Development: Employees are encouraged to attend conferences and outside training events to support their professional development.

Culture & Engagement: The company's culture is guided by core principles of faith, family, and fun, aiming to drive sustainable growth and deliver exceptional results.

Environmental & Social Impact

Environmental Commitments: While specific environmental targets or programs are not detailed, the company acknowledges climate change as a risk factor. This includes increased likelihood and severity of natural disasters, longer-term shifts in climate patterns, and potential negative impacts on geographic markets, customer operations, and third-party reliance. The company also notes increasing scrutiny from stakeholders regarding Environmental, Social, and Governance (ESG) practices and disclosures.

Supply Chain Sustainability: Not explicitly mentioned in the filing.

Social Impact Initiatives: The company emphasizes its focus on being the "community bank of choice" and building long-standing community relationships, which are integral to its operational philosophy.

Business Cyclicality & Seasonality

Demand Patterns: The company's business and operations are sensitive to general business and economic conditions in the U.S. and its specific market areas. Demand for loan originations may decline in environments of elevated interest rates. Mortgage originations have decreased due to higher interest rates and reduced refinance activity. Economic Sensitivity: The ability of the company's debtors to honor their contracts is substantially dependent upon the general economic conditions of its primary markets, which include agribusiness, wholesale/retail, oil and gas, healthcare industries, and institutions of higher education. Industry Cycles: The energy industry is a significant sector in the company's Texas markets. Sustained volatility in oil prices and the energy industry could lead to increased credit losses in its energy portfolio and weaker demand for energy lending.

Planning & Forecasting: Not explicitly detailed in the filing.

Regulatory Environment & Compliance

Regulatory Framework: South Plains Financial, Inc. and its subsidiary, City Bank, are extensively regulated under U.S. federal and state law. Key regulatory bodies include the Texas Department of Banking (TDB), the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Consumer Finance Protection Bureau (CFPB), the Internal Revenue Service (IRS), the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC), and the U.S. Department of the Treasury (for anti-money laundering).

Industry-Specific Regulations:

• Capital Requirements: The company and City Bank are subject to Basel III Capital Rules (Tier 1 leverage, Common Equity Tier 1, Tier 1, and Total Capital ratios) and the Prompt Corrective Action framework. As of December 31, 2025, both the company and City Bank met all capital adequacy requirements and were considered "well-capitalized." The company has not opted into the Community Bank Leverage Ratio (CBLR) framework.
• Community Reinvestment Act (CRA): City Bank had a "satisfactory" CRA rating at its most recent assessment.
• Anti-Money Laundering (AML) & OFAC: Compliance with the Bank Secrecy Act (BSA), USA PATRIOT Act, National Defense Authorization Act, and FinCEN regulations (including the Corporate Transparency Act for beneficial ownership reporting) is mandatory.
• Consumer Financial Services: Subject to laws such as the Equal Credit Opportunity Act (ECOA), Fair Housing Act (FHA), Home Mortgage Disclosure Act (HMDA), and regulations prohibiting Unfair, Deceptive, or Abusive Acts or Practices (UDAAP).
• Commercial Real Estate Concentrations: Subject to federal banking agencies' guidance on concentrations in acquisition, development, and construction (ADC) loans and non-owner occupied commercial real estate loans.

Trade & Export Controls: Changes in U.S. trade policies, including tariffs and retaliatory tariffs, are identified as a risk factor that could impact customers' businesses and debt servicing ability.

Legal Proceedings: The company is not presently involved in any litigation that management believes would result in a material adverse effect on its financial position or results of operations.

Tax Strategy & Considerations

Tax Profile (2025):

• Effective Tax Rate: 21.1%
• Federal Statutory Rate: 21.0% Geographic Tax Planning: The company files a consolidated federal income tax return and is subject to the Texas franchise tax as a combined group. Tax Reform Impact: The One Big Beautiful Bill Act (OBBBA), signed in July 2025, extends or modifies various tax provisions from the 2017 Tax Cuts and Jobs Act and introduces new revenue-raising measures. The company is currently evaluating the impact of the OBBBA on its business and consolidated financial statements.

Insurance & Risk Transfer

Risk Management Framework: South Plains Financial, Inc. has implemented a comprehensive Information Security and Risk Management Program designed to comply with applicable federal and state regulations and is regularly audited by independent experts. The company also manages risk for employee health benefits through a self-insured welfare benefit plan, with risk exposure limited by a stop-loss policy from an independent third-party insurer for benefits exceeding $200 thousand per participant per year. Insurance Coverage: Not explicitly detailed beyond the stop-loss policy for employee health benefits. Cybersecurity risk factors mention the potential for increased insurance costs or difficulty in obtaining adequate cyber insurance coverage.