Southside Bancshares, Inc. (SBSI) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. The company shows positive signs with increased deposits, noninterest income, and a strong pipeline. However, the slight decrease in NIM, lowered loan growth guidance, and potential headwinds from sub debt costs present challenges. The Q&A highlights cautious optimism with disciplined pricing and potential for growth in Texas, but uncertainties around rate cuts and securities restructuring remain. The buyback program is opportunistic but not aggressive. Overall, the sentiment is neutral due to balanced positive and negative factors, lacking a strong catalyst for significant stock movement.
Key Financial Performance
Net Income $4.9 million, a decrease of $16.9 million or 77.5% year-over-year. The decrease was driven by the loss on the sale of available-for-sale securities.
Diluted Earnings Per Share $0.16, a decrease of $0.56 per share year-over-year. This decline is attributed to the loss on the sale of securities.
Loans $4.77 billion as of September 30, a linked quarter increase of $163.4 million or 3.5%. The increase was driven by growth in commercial real estate loans ($82.6 million), commercial loans ($49.3 million), and construction loans ($49.1 million), partially offset by decreases in municipal loans ($10.4 million) and 1 to 4 family residential loans ($6 million).
Nonperforming Assets 0.42% of total assets as of September 30, an increase of $2.7 million linked quarter. The increase is concentrated in a $27.5 million multifamily loan moved to nonperforming earlier in the year.
Allowance for Credit Losses $48.5 million as of September 30, an increase from $48.3 million on June 30. However, the allowance for loan losses as a percentage of total loans decreased to 0.95% from 0.97%.
Securities Portfolio $2.56 billion as of September 30, a decrease of $174.2 million or 6.4% linked quarter. The decrease was due to the restructuring of the available-for-sale portfolio, including sales of $325 million of lower-yielding securities.
Deposits Increased $329.6 million or 5% linked quarter, driven by a $288.6 million increase in broker deposits and a $137.1 million increase in commercial and retail deposits, partially offset by a $96.1 million decrease in public fund deposits.
Net Interest Income Increased $1.45 million or 2.7% linked quarter. The increase was partially offset by a 1 basis point decrease in the net interest margin to 2.94%.
Noninterest Income Increased $260,000 or 2.1% linked quarter, primarily due to an increase in trust fees.
Noninterest Expense $37.5 million, a decrease of $1.7 million or 4.4% linked quarter. The decrease was driven by a $1.2 million write-off on the demolition of a branch recorded last quarter and lower software and data processing expenses.
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Operating Highlights
Loan Growth: Loans increased by $163 million during the quarter, with $81 million of that growth occurring on September 30. Third quarter new loan production totaled approximately $500 million, compared to $290 million in the second quarter.
Pipeline and Market Health: Loan pipeline rebounded to $1.8 billion, with a balanced mix of term loans (42%) and construction/commercial lines of credit (58%). The Texas economy is expected to grow faster than the overall U.S. growth rate.
Securities Portfolio Repositioning: Sold $325 million of lower-yielding securities, resulting in a net loss of $24.4 million. Proceeds were reinvested in higher-yielding agency mortgage-backed pools and Texas municipal securities, enhancing future net interest income and balance sheet flexibility.
Net Interest Income and Margin: Net interest income increased by $1.45 million, while net interest margin decreased by 1 basis point due to subordinated debt issuance.
Noninterest Income and Expense: Noninterest income (excluding securities loss) increased by $260,000, while noninterest expense decreased by $1.7 million due to lower software and data processing costs and the absence of a prior branch demolition write-off.
Subordinated Debt Issuance: Issued $150 million of subordinated debt at a 7% fixed-to-floating rate to support growth and liquidity.
Stock Repurchase Plan: Repurchased 26,692 shares at an average price of $30.24 and approved an additional 1 million shares for repurchase under the current plan.
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Risk or Challenges
Repositioning of Securities Portfolio: The company incurred a net loss of $24.4 million from selling lower-yielding long-duration municipal securities and mortgage-backed securities. This loss, while aimed at enhancing future net interest income, represents a short-term financial setback.
Subordinated Debt Issuance: The issuance of $150 million in subordinated debt at a 7% fixed-to-floating rate increased the company's debt burden and contributed to a decrease in net interest margin by 1 basis point.
Nonperforming Assets: Nonperforming assets increased by $2.7 million during the quarter, with a significant portion concentrated in a $27.5 million multifamily loan that remains unresolved. This poses a risk to credit quality and financial stability.
Loan Payoffs and Refinancing: Commercial real estate payoffs totaled $116 million, with some properties refinanced by other banks offering lower fixed rates. This competitive pressure could impact the company's ability to retain clients and maintain loan growth.
Unrealized Losses in Securities Portfolio: The company reported a net unrealized loss of $15.4 million in its available-for-sale securities portfolio, which, despite some improvement, reflects ongoing exposure to market volatility.
Loan Pipeline Reduction: The loan pipeline dipped to $1.5 billion mid-quarter before rebounding to $1.8 billion, indicating potential fluctuations in future loan growth and revenue.
Oil and Gas Industry Exposure: Loans with oil and gas industry exposure increased to $70.6 million, representing 1.5% of total loans. This sector's inherent volatility could pose risks to the company's loan portfolio.
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Guidance & Outlook
Net Interest Income: The repositioning of the securities portfolio and late third-quarter loan growth are expected to enhance future net interest income. The payback period for the loss incurred from the sale of securities is estimated to be less than 4 years.
Loan Production and Pipeline: Third-quarter new loan production totaled approximately $500 million, with $281 million funded during the quarter. The unfunded portion is expected to fund over the next 6 to 9 quarters, weighted towards the back end. The loan pipeline rebounded to $1.8 billion, with a balanced mix of term loans (42%) and construction/commercial lines of credit (58%).
Market Conditions: The Texas economy is anticipated to grow at a faster pace than the overall U.S. growth rate. The markets served by the company remain healthy.
Noninterest Expense: Noninterest expense is expected to be in the $38 million range for the fourth quarter.
Tax Rate: The company is estimating an annual effective tax rate of 16.6% for 2025.
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Shareholder Return Plan
Repurchase of common stock: 26,692 shares of common stock were repurchased at an average price of $30.24 during the third quarter.
Board approval for additional repurchase: On October 16, 2025, the Board approved an additional 1 million shares authorization under the current repurchase plan, bringing the shares available for repurchase to approximately 1.1 million.
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Key Q&A
Q:What is the expected starting margin for the fourth quarter considering the late quarter growth and securities restructuring?
A:The NIM in the fourth quarter is expected to be up slightly. Average loans will increase $125 million during the quarter, and the full impact of $325 million of security sales restructuring will take effect. CDs repricing will save around 34 basis points on average. However, there are headwinds like the full impact of the 7% sub debt costs and repricing of $92 million at a higher rate. Overall, net interest income is expected to improve.
Q:Is there any update on potential deals or hiring opportunities in Texas?
A:The company is interested in a few institutions that might be for sale. They are also looking at hiring opportunities due to disruptions caused by larger out-of-state banks acquiring smaller Texas banks. Some hires have already been made.
Q:What is the pipeline outlook for the fourth quarter, and was there any pull-through from the previous quarter?
A:The pipeline is strong, bouncing back to $1.8 billion after a dip. This is significantly higher than the $1 billion pipeline from 12 months ago. The pull-through rate is generally 25% to 30%, and the company feels good about its guidance despite potential unknown payoffs towards year-end.
Q:Are there specific segments showing strength, and what is the pricing competition like?
A:There is strong competition in both CRE and C&I segments. Pricing has remained disciplined, with spreads over SOFR around 2% for high-quality, fully funded transactions. Construction debt lending rates range from 2.50% to 2.75%. The company is cautious but competitive in its pricing approach.
Q:Will there be additional securities restructuring to fund future loan growth?
A:The recent restructuring has provided flexibility, with many securities now at gains. While most heavy lifting in the AFS portfolio is done, the company will consider additional restructuring if market conditions are favorable.
Q:What is the strategy for the buyback program?
A:The company increased its buyback authorization in July 2023 and has since purchased approximately 868,000 shares. The strategy is opportunistic, focusing on purchasing shares when prices dip, without a plan for aggressive activity.
Q:What is the outlook for trust fees and fee income?
A:Trust fees have shown steady growth, and double-digit revenue growth is expected next year. The company is exploring wealth management opportunities in metro markets, with plans to expand in Fort Worth as a starting point.
Q:How many rate cuts are assumed through year-end and into 2026?
A:The company anticipates at least two rate cuts next year, depending on inflation, employment, and new Fed leadership. There is potential for more cuts based on executive branch influence and economic conditions.
Q:Was the growth in DDA seasonal or sticky?
A:The growth in DDA is not seasonal. It was influenced by large depositors from Erafile business, which is expected to moderate in the fourth quarter.
Q:What is the growth impact from new lenders, particularly in Houston?
A:Positive traction is seen in Houston, with four new hires contributing to growth. Loan growth in Houston is around 15% this year, with a focus on C&I and CRE lending. The C&I mix has increased from 15% to 16% of the book.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on the exact number of rate cuts expected, citing dependence on inflation, employment, and new Fed leadership. Additionally, while discussing securities restructuring, they did not specify the likelihood or timing of future actions, only stating it would depend on market conditions.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Audio Gap
CEO Keith
CI opportunity
Credit quality
East Texas
Gap assumption
Keith Donahoe
Keith commentary
Keith loan
President CFO
Texas security
agency mortgage
asset meeting
balance agency
bank lender
comment Keith
commentary loan
condition opportunity
construction nature
coupon extent
coupon sale
credit CI
day portion
debt income
debt rate
end percentage
end quarter
estate payoff
extent Texas
extent mortgage
facility land
flexibility payback
improvement payoff
income balance
line credit
mid
portfolio loan
production quarter
repositioning
sale security
swap market
SBSI Transcript
Southside Bancshares, Inc. (SBSI) Q1 2026 Earnings Call Transcript
Unknown5-1
The earnings call presents mixed signals. While there are positive aspects like net income growth and anticipated NIM improvement, there are concerns over non-interest income decline, increased expenses, and lack of clear guidance on key metrics. The Q&A reveals cautious optimism with some uncertainties, particularly in loan growth and market conditions. Given these factors, the overall sentiment leans towards a neutral market reaction.
Southside Bancshares, Inc. (SBSI) Q4 2025 Earnings Call Transcript
Unknown1-29
The earnings call presents mixed signals: strong Q4 results with a significant EPS increase, but an annual decline in net income and EPS due to portfolio restructuring. Positive aspects include improved net interest margin, loan growth, and a strategic focus on M&A and stock buybacks. However, concerns arise from the 2026 expense growth, muted margin expectations, and unclear management responses. The Q&A section reveals cautious optimism but lacks concrete commitments. Overall, the sentiment is neutral, with no significant catalysts to drive a strong stock price movement.
Southside Bancshares, Inc. (SBSI) Q3 2025 Earnings Call Transcript
Unknown10-24
The earnings call presents mixed signals. The company shows positive signs with increased deposits, noninterest income, and a strong pipeline. However, the slight decrease in NIM, lowered loan growth guidance, and potential headwinds from sub debt costs present challenges. The Q&A highlights cautious optimism with disciplined pricing and potential for growth in Texas, but uncertainties around rate cuts and securities restructuring remain. The buyback program is opportunistic but not aggressive. Overall, the sentiment is neutral due to balanced positive and negative factors, lacking a strong catalyst for significant stock movement.
Southside Bancshares, Inc. (SBSI) Q2 2025 Earnings Call Transcript
Unknown7-25
The earnings call presents mixed signals. While there are positive aspects such as increased net income, EPS, and loan growth, challenges like increased noninterest expenses, potential deposit volatility, and unrealized losses in the securities portfolio pose risks. The Q&A section highlights optimism in loan production and NIM, but also notes unpredictable payoffs and competition. The share repurchase plan is a positive, but overall, these factors balance out, leading to a neutral sentiment prediction.
SBSI Report
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