Southside Bancshares Q4 Earnings Call Highlights

01 Feb 2026, 06:06 by Danessa Lincoln · The Markets Daily

Southside Bancshares (NYSE:SBSI) executives highlighted a fourth-quarter rebound in profitability, continued progress on securities portfolio repositioning, and expectations for modest near-term net interest margin improvement during the company’s fourth quarter and year-end 2025 earnings call. Management also discussed loan growth dynamics, deposit shifts, expense plans tied to technology initiatives, and an active—but selective—approach to M&A in Texas.

Securities repositioning and margin outlook

CEO Keith Donahoe said the company used improved market conditions early in the fourth quarter to continue a partial restructuring of its available-for-sale (AFS) securities portfolio. Southside sold about $82 million of lower-yielding, long-duration municipal securities with a combined taxable equivalent yield of 2.6%, generating a $7.3 million net loss. The sales were completed at the end of October.

Donahoe said net proceeds, along with additional portfolio cash flows and a $49.7 million sale of a Treasury bill, were reinvested into “low-premium, primarily 5.5% coupon agency MBS,” with an average yield of 5.36%. He said, as with similar activity in the third quarter, management believes the move will enhance future net interest income and increase balance sheet flexibility. Donahoe added the company estimates payback on the third-quarter security sales at less than 3.5 years.

CFO Julie Shamburger said the company purchased $373 million of securities during the fourth quarter, primarily mortgage-backed securities, more than offsetting sales, maturities, and principal payments. As a result, the securities portfolio increased $147.9 million, or 5.8%, to $2.7 billion at December 31, compared to $2.56 billion at September 30.

Shamburger also noted improvement in the AFS mark-to-market position, with net unrealized loss in the AFS portfolio of $767,000 at year-end, down from $15.4 million the prior quarter. She said the unrealized gain on the fair value hedges on municipal and mortgage-backed securities was about $788,000 at December 31, which more than offset unrealized losses in the AFS portfolio. Portfolio duration also moved lower, with total securities duration at 7.6 years versus 8.7 years the prior quarter; AFS duration was 4.8 years versus 6.5 years.

On profitability metrics, the company’s tax-equivalent net interest margin was 2.98% in the fourth quarter, up 4 basis points from 2.94%, while tax-equivalent net interest spread rose 5 basis points to 2.31%. Management attributed the improvement primarily to lower funding costs, alongside moderate loan growth. Donahoe said the company expects additional margin expansion from redeeming approximately $93 million of subordinated debt on February 15, 2026.

During Q&A, management said margin improvement should be “positive” in the first quarter but “muted,” with a bigger pickup expected later in the year. Shamburger explained the subordinated debt repriced mid-fourth quarter and will be retired mid-first quarter, meaning the impact in the first quarter would be similar to the fourth quarter, with improvement expected when replacement funding flows through in the second quarter.

Earnings, balance sheet trends, and credit

Shamburger reported fourth-quarter net income of $21.0 million, up $16.1 million from the prior quarter, with diluted earnings per share of $0.70, up $0.54 linked-quarter. For full-year 2025, Southside reported net income of $69.2 million and diluted EPS of $2.29, compared to $2.91 for 2024. Shamburger said the year-over-year decline was driven by the AFS securities restructuring.

Loans totaled $4.18 billion at December 31, up $52.7 million, or 1.1%, from the prior quarter. Shamburger said the increase was driven by construction loans (+$29.0 million), commercial real estate loans (+$24.1 million), and commercial loans (+$14.8 million), partially offset by decreases in municipal loans (-$6.6 million) and one-to-four family residential loans (-$5.7 million). The average rate on loans funded during the fourth quarter was approximately 6.6%.

Donahoe said fourth-quarter new loan production totaled about $327 million, down from about $500 million in the third quarter. Of the quarter’s production, $215 million funded during the quarter, and the unfunded portion is expected to fund over the next six to nine quarters. He also noted fourth-quarter payoffs of approximately $164 million (excluding regular amortization and line of credit activity), compared with $117 million in the third quarter, while characterizing it as the second-lowest quarter for payoffs in 2025. He added that the company exited a C&I participation due to pricing “well below our comfort zone.”

On the pipeline, Donahoe said it dipped to $1.5 billion mid-quarter but rebounded after the start of the year to just over $2 billion. The mix remained consistent with the third quarter, at roughly 42% term loans and 58% construction or commercial lines, with C&I-related opportunities representing about 20% of the total pipeline.

Credit quality was described as strong. Donahoe said non-performing assets increased $2.6 million during the fourth quarter, primarily related to a $2.4 million loan secured by a small residential condo project, but remained concentrated in a previously disclosed $27.5 million multifamily loan moved into non-performing status during the first quarter of 2025. He said management remained optimistic the borrower would finalize a refinance “within the next two weeks.” Non-performing assets were 0.45% of total assets at year-end.

Shamburger said the allowance for credit losses declined slightly to $48.3 million from $48.5 million, and allowance for loan losses as a percentage of total loans decreased one basis point to 0.94%.

Deposits, liquidity, capital actions, and buybacks

Deposits fell $96.4 million, or 1.4%, linked-quarter. Shamburger attributed the decline to a $233.5 million decrease in brokered deposits, partially offset by a $40.8 million increase in retail deposits and an $86.3 million increase in public fund deposits.

Management highlighted upcoming capital actions and liquidity. Shamburger said the company will redeem $93 million of subordinated notes due 2030 on February 15; the notes adjusted during the fourth quarter to a floating rate of 7.51%. She added that liquidity resources remained solid, with $2.78 billion in liquidity lines available as of December 31, and capital ratios remained “well above” well-capitalized thresholds.

During the fourth quarter, Southside repurchased 369,804 shares at an average price of $28.84. Shamburger said there were no purchases after December 31, and about 762,000 shares remained authorized for repurchase. In response to analyst questions, Donahoe said the company plans to remain opportunistic on buybacks, noting that potential acquisitions could influence pace and prioritization. He characterized subordinated debt retirement as the top capital priority, followed by stock buybacks and then M&A.

Expenses, technology investment, and 2026 planning

Non-interest expense was $37.5 million in the fourth quarter, essentially flat with the prior quarter. The company’s fully taxable equivalent efficiency ratio improved to 52.28% at December 31 from 52.99% at September 30, driven primarily by higher total revenue.

For 2026, Shamburger said the company has budgeted a 7% increase in non-interest expense over 2025 actual levels, citing salary and benefits, software expense, professional fees, retirement expense, and an expected one-time charge of approximately $800,000 related to the subordinated debt redemption. For the first quarter of 2026, Southside anticipates non-interest expense of approximately $39.5 million, which Shamburger later clarified includes the one-time $800,000 charge. She also noted that the first-quarter forecast does not reflect a full 7% increase because the expense increases are expected to come in over the course of the year.

In response to questions on what is driving the expense build, Donahoe discussed two major software initiatives: moving the company’s core system off-premises to OutLink, and building out a data platform to improve insight into data across multiple systems. Shamburger added that software and data processing costs are budgeted about $2.3 million to $2.4 million higher than 2025 spend. On staffing, Shamburger said full-time equivalent employees have declined about 6% since December 2023, while Donahoe said the company is making process changes in loan origination and expects some staff additions in specific areas to address current workload.

M&A posture and fee income expectations

Donahoe said M&A remains part of the strategy, but emphasized the company is not looking to “acquire just to acquire.” He pointed to Dallas, Houston, and Austin as areas of interest, describing Dallas and Houston as markets where the company currently has loan production offices, and noting a new retail location in The Woodlands is expected to open within about 60 days.

In discussing target size, Donahoe said the company is not looking to buy something in the $2 billion asset category and would focus below roughly $1.5 billion, while remaining open to opportunities that could move the bank meaningfully toward or over $10 billion in assets. He described the strategy as a “puzzle,” given fewer targets in the $3 billion to $5 billion range in Texas.

Shamburger also discussed fee income expectations, saying the company budgeted about $1.5 million of fee income growth, with much of the increase expected from trust income. She said Southside has added talent in that area and is considering expanding the trust team into the Fort Worth/North Texas area. She also cited expected increases in treasury fees and brokerage services income, based on recent trends.

Donahoe said the company is watching for potential customer and employee displacement tied to recent Texas bank deal activity and is pursuing opportunities in that environment.

About Southside Bancshares (NYSE:SBSI)

Southside Bancshares Inc is a bank holding company headquartered in Tyler, Texas. Through its subsidiary, Southside Bank, it provides a broad array of commercial and consumer banking services to individuals and businesses. The company’s offerings include deposit products, loan facilities and treasury management solutions tailored to the needs of its clientele. Established in 1974, Southside Bancshares has grown its footprint across East and North Texas while maintaining a community banking focus.

In the commercial banking segment, the company extends financing for real estate development, construction projects, equipment purchases and working capital needs.