Southside Bancshares, Inc. (SBSI) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Net Income (Q4 2025) $21 million, an increase of $16.1 million or 327.2% year-over-year. The increase was attributed to lower funding costs and moderate loan growth.
Diluted Earnings Per Share (Q4 2025) $0.70, an increase of $0.54 per share linked quarter. The increase was driven by improved net interest income and lower funding costs.
Net Income (2025) $69.2 million, a decrease of $19.3 million or 21.8% year-over-year. The decrease was driven by the restructuring of the AFS securities portfolio.
Diluted Earnings Per Share (2025) $2.29, a decrease from $2.91 in 2024. The decrease was due to the restructuring of the AFS securities portfolio.
Loans (as of December 31, 2025) $4.82 billion, a linked quarter increase of $52.7 million or 1.1%. The increase was driven by growth in construction loans, commercial real estate loans, and commercial loans.
Allowance for Credit Losses (as of December 31, 2025) $48.3 million, a decrease from $48.5 million on September 30, 2025. The decrease reflects improved credit quality.
Net Interest Margin (Q4 2025) 2.98%, an increase of 4 basis points from 2.94% in the previous quarter. The increase was primarily due to lower funding costs.
Noninterest Income (Q4 2025) Increased by $494,000 or 4% linked quarter. The increase was driven by higher deposit services, BOLI income, and brokerage services income.
Noninterest Expense (Q4 2025) $37.5 million, consistent with the previous quarter, with a slight decrease of $57,000.
Deposits (as of December 31, 2025) Decreased by $96.4 million or 1.4% linked quarter. The decrease was due to a reduction in broker deposits, partially offset by increases in retail and public fund deposits.
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Operating Highlights
Market Conditions and Securities Restructuring: Sold $82 million of lower-yielding municipal securities and reinvested in higher-yielding Agency MBS to enhance future net interest income and balance sheet flexibility.
Loan Production and Pipeline: Fourth quarter new loan production totaled $327 million, with $215 million funded during the quarter. Loan pipeline rebounded to $2 billion after dipping to $1.5 billion mid-quarter.
Regional Market Health: The Texas economy is expected to grow faster than the overall U.S. growth rate.
Net Interest Margin and Income: Net interest margin expanded to 2.98%, with a $1.5 million linked quarter increase in net interest income due to lower funding costs and moderate loan growth.
Nonperforming Assets: Nonperforming assets increased by $2.6 million but remained low at 0.45% of total assets.
Allowance for Credit Losses: Allowance for credit losses decreased slightly to $48.3 million, with allowance for loan losses at 0.94% of total loans.
Efficiency Ratio: Efficiency ratio improved to 52.28% from 52.99% due to increased total revenue.
Debt Redemption: Plan to redeem $93 million of subordinated debt on February 15, 2026, to reduce future interest expenses.
Stock Repurchase: Repurchased 369,804 shares of common stock at an average price of $28.84 during the fourth quarter.
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Risk or Challenges
Market Conditions: The company experienced a $7.3 million net loss from the sale of lower-yielding long-duration municipal securities, indicating potential challenges in managing market conditions and optimizing portfolio performance.
Loan Production and Payoffs: Fourth quarter new loan production decreased significantly to $327 million from $500 million in the third quarter. Additionally, payoffs increased to $164 million, which could impact future loan growth and revenue.
Nonperforming Assets: Nonperforming assets increased by $2.6 million, primarily due to a $2.4 million loan secured by a small residential condo project. This could indicate potential credit quality issues.
Deposit Levels: Deposits decreased by $96.4 million or 1.4% on a linked-quarter basis, driven by a significant decrease in broker deposits. This could affect liquidity and funding stability.
Restructuring Costs: The restructuring of the AFS securities portfolio led to a decrease in net income for 2025 by $19.3 million or 21.8%, highlighting the financial impact of these strategic decisions.
Interest Rate Environment: The redemption of $93 million of subordinated debt with a floating rate of 7.51% could pose challenges in managing interest expenses and maintaining net interest margin.
Software Initiatives: Several software initiatives budgeted for 2025 did not materialize, which may delay operational improvements and increase costs in 2026.
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Guidance & Outlook
Net Interest Margin Expansion: The company expects additional net interest margin expansion resulting from the redemption of approximately $93 million of subordinated debt on February 15, 2026.
Loan Production and Pipeline: Fourth quarter new loan production totaled approximately $327 million, with $215 million funded during the quarter. The unfunded portion is expected to fund over the next 6 to 9 quarters. The loan pipeline rebounded to just over $2 billion after the first of the year, with a mix of 42% term loans and 58% construction or commercial lines of credit.
Texas Economic Growth: The Texas economy is anticipated to grow at a faster pace than the overall projected U.S. growth rate.
Noninterest Expense for 2026: The company has budgeted a 7% increase in noninterest expense in 2026 over 2025 actual, primarily related to salary and employment benefits, software expense, professional fees, retirement expense, and a one-time charge of approximately $800,000 in connection with the redemption of subordinated notes.
First Quarter 2026 Noninterest Expense: Noninterest expense for the first quarter of 2026 is anticipated to be approximately $39.5 million.
Annual Effective Tax Rate for 2026: The company is currently estimating an annual effective tax rate of 17.4% for 2026.
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Shareholder Return Plan
Share Repurchase: During the fourth quarter, Southside Bancshares purchased 369,804 shares of its common stock at an average price of $28.84. As of December 31, there have been no additional purchases since that date. The company has approximately 762,000 shares remaining authorized for repurchase.
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Key Q&A
Q:What is the reason for the 7% expense growth budgeted for 2026?
A:The expense growth is primarily due to software projects and hiring strategies. The company is moving its core to outlink, transitioning from on-premise to off-premise hosting, and building a data platform for better insights. Additionally, personnel changes and staff additions are being made to handle high loan growth volumes.
Q:What is the company's approach to M&A in the current environment?
A:The company remains open to strategic M&A opportunities, focusing on filling geographic gaps, such as expanding in Dallas, Houston, and Austin. They are considering acquisitions that align with their strategy and provide growth opportunities.
Q:What are the expectations for the first quarter margin in 2026?
A:The margin is expected to be positive but muted in the first quarter, with a bigger pickup anticipated later in the year. A one-time charge for sub-debt redemption will impact the first quarter, but improvements are expected in the second quarter.
Q:What is the outlook for loan growth in 2026?
A:Loan production is expected to exceed 2025 levels, but high payoffs, particularly from construction projects, are anticipated. The pipeline has rebounded to over $2 billion, with significant activity in the closing process. However, it is too early to predict if they will exceed their targets.
Q:What is the company's strategy for stock buybacks in 2026?
A:The company plans to be opportunistic with stock buybacks, balancing it with other capital strategies like sub-debt retirement and potential M&A activities.
Q:What is the fee income outlook for 2026?
A:The company expects a $1.5 million increase in fee income, primarily from trust income fees, treasury fees, and brokerage services. They are expanding their trust income team into the Fort Worth and North Texas areas.
Q:What is the company's approach to the securities portfolio in 2026?
A:The company plans to be opportunistic with the securities portfolio, making moves based on favorable rate conditions. Currently, they are in a holding pattern.
Q:How is the company addressing M&A-related disruptions in Texas?
A:The company is actively seeking opportunities from M&A-related disruptions, targeting both customer and employee displacement in markets like Dallas and Houston.
Q:What is the company's approach to M&A target asset size and crossing $10 billion?
A:The company prefers targets below $1.5 billion but is open to larger opportunities that could significantly help them cross the $10 billion threshold. They are focusing on a strategy that may involve multiple transactions to achieve this goal.
Q:Does the $39.5 million operating expense for Q1 2026 include the one-time charge?
A:Yes, the $39.5 million operating expense includes the one-time charge of $800,000.
Q:Review of Unclear Management Responses
A:Management avoided providing a detailed breakdown of the incremental expense build between software and FTEs, citing a lack of specific data at hand. Additionally, while discussing M&A opportunities and loan growth, the responses were somewhat vague, with no concrete commitments or detailed forecasts provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Agency yield
Bancshares end
CEO Keith
CFO Keith
CI participation
CRE payoff
Difficulty VP
End Instructions
Inc End
Instructions SVP
Investor Relations
Keith Donahoe
Keith Lindsey
Keith comment
Officer Southside
President CEO
SVP Technical
Southside Bancshares
Technical Difficulty
asset income
bill premium
borrower refinance
comfort zone
comment overview
condition restructuring
condo project
cost loan
coupon Agency
credit mix
end proceeds
end transcript
expansion redemption
line credit
office
sale security
security sale
SBSI Transcript
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.
Southside Bancshares, Inc. (NASDAQ:SBSI) Q1 2025 Earnings Call Transcript
Unknown4-30
The earnings call presents a mixed picture: a decrease in noninterest income and slight net income decline are negatives, but positive net interest margin and share repurchase program are positives. The Q&A reveals optimism about loan pipeline and margin improvements, but management's lack of clarity on certain details could be concerning. Given these factors, the sentiment remains neutral, reflecting balanced positives and negatives.
SBSI Report
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