Earnings call transcript: Southside Bancshares Q2 2025 beats earnings expectations

Southside Bancshares Inc. (SBSI), a regional bank with a market capitalization of $909 million, reported its second-quarter 2025 earnings, surpassing Wall Street expectations with an EPS of $0.72 against a forecast of $0.68, representing a surprise of 5.88%. Revenue also exceeded projections, coming in at $68.84 million compared to the anticipated $68.08 million. Despite these strong results, the stock closed at $30.66, down 1.83% from the previous day, amid broader market fluctuations. According to InvestingPro analysis, the company maintains a FAIR financial health score of 2.13, with particularly strong marks in profitability metrics.

Key Takeaways

• Southside Bancshares reported a 1.4% increase in net income quarter-over-quarter.
• The company’s net interest margin improved by 9 basis points to 2.95%.
• Despite earnings beat, the stock declined by 1.83% in the latest session.
• The company lowered its loan growth guidance to 3-4% year-over-year.

Company Performance

Southside Bancshares demonstrated robust performance in the second quarter of 2025, with net income rising to $21.8 million, a 1.4% increase from the previous quarter. The company’s strategic expansion in the Commercial & Industrial (C&I) sector is paying off, as C&I now constitutes 30% of its total loan pipeline, up from 25%. The overall loan pipeline has grown slightly to over $2.1 billion.

Financial Highlights

• Revenue: $68.84 million, above forecast of $68.08 million
• Earnings per share: $0.72, up from $0.71 in the previous quarter
• Net interest income: $54.3 million, an increase of $414,000
• Efficiency ratio: Improved to 53.7% from 55.04%
• Noninterest expense: $39.3 million, up 5.8% quarter-over-quarter

Earnings vs. Forecast

Southside Bancshares exceeded analyst expectations with an EPS of $0.72 versus the forecasted $0.68, marking a 5.88% surprise. Revenue also surpassed estimates by 1.12%, coming in at $68.84 million. This performance aligns with the company’s historical trend of beating earnings forecasts, though the magnitude of the surprise is notable.

Market Reaction

Despite the positive earnings report, Southside Bancshares’ stock fell by 1.83% to $30.66. This decline comes amid broader market volatility and may reflect investor caution due to ongoing economic uncertainties and competitive pressures in the Texas market. The stock remains within its 52-week range, with a high of $38 and a low of $25.85. Based on InvestingPro’s comprehensive Fair Value analysis, the stock appears slightly undervalued at current levels, trading at an attractive P/E ratio of 10.91 with a revenue growth of 6.01% over the last twelve months. For deeper insights into valuation opportunities, explore InvestingPro’s detailed research reports covering 1,400+ US stocks.

Outlook & Guidance

Looking ahead, Southside Bancshares has revised its loan growth guidance downwards to 3-4% year-over-year, reflecting moderated expectations for the second half of 2025. The company anticipates further expansion in its net interest margin and sees potential opportunities from bank consolidations in the Texas market.

Executive Commentary

Lee Gibson, CEO, expressed confidence in the company’s future, stating, "Our excellent second quarter results only reinforce our optimistic outlook for 2025." President Keith Donahoe highlighted competitive pressures, noting, "We’re seeing debt funds that are now pricing deals that banks were getting from a spread standpoint six months ago."

Risks and Challenges

• Increasing competition from debt funds offering lower spreads and higher leverage.
• Economic uncertainties due to ongoing tariff negotiations.
• Potential impact of rising noninterest expenses on profitability.
• Challenges in managing deposit costs amid fluctuating interest rates.
• Risks associated with the performance of multifamily credit loans.

Q&A

During the earnings call, analysts inquired about the company’s strategy for managing deposit costs and its response to competitive pressures in the lending market. Executives highlighted their focus on adjusting CD rates and leveraging potential talent acquisition from out-of-state bank mergers to enhance operational efficiency.

Full transcript - Southside Bancshares Inc (SBSI) Q2 2025:

Conference Operator: Thank you for standing by, and welcome to Southside Bancshares’ Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again.

I would now like to hand the call over to Lindsey Bales, Vice President, Investor Relations. Please go ahead.

Lindsey Bales, Vice President, Investor Relations, Southside Bancshares: Thank you, Latif. Good morning, everyone, and welcome to Southside Bancshares’ second quarter twenty twenty five earnings call. A transcript of today’s call will be posted on southside.com under Investor Relations. During today’s call and in other disclosures and presentations, I remind you forward looking statements are subject to risks and uncertainties. Factors that could materially change our current forward looking assumptions are described in our earnings release and our Form 10 ks.

Joining me today are CEO, Lee Gibson President, Keith Donahoe and CFO, Julie Schamberger. First, Lee will start us off with his comments on the quarter, then Keith will discuss loans and credit, and then Julie will give an overview of our financial results. I will now turn the call over to Lee.

Lee Gibson, CEO, Southside Bancshares: Thank you, Lindsay, and welcome to today’s call. We had an excellent quarter with net income of $21,800,000 resulting in diluted earnings per share of zero seven two dollars an annualized return on average assets of 1.07% and an annualized return on average tangible common equity of 14.38%. I want to thank our dedicated team members for their hard work and contributions that were instrumental in producing these results. Linked quarter, our net interest margin increased nine basis points to 2.95%, and net interest income increased $414,000 to $54,300,000 The yield on our earning assets increased two basis points, and the cost of our interest bearing liabilities decreased by five basis points. Linked quarter total loans increased $35,000,000 while average total loans during the quarter decreased $106,000,000 primarily due to heavy payoffs during the first two months of the quarter.

Linked quarter total loan growth resulted from the strong net loan growth of $104,000,000 during June, a large portion of which occurred during the last two weeks. We anticipate this late quarter loan growth bodes well for potential further NIM expansion during the third quarter. Our loan pipeline is solid, and shortly, Keith will provide additional details related to the second quarter loan activity and our current loan pipeline. Our deposits, net of public funds and brokered deposits, increased $90,100,000 linked quarter. Based on discussions with our customers related to the uncertainties in the market surrounding tariff announcements and the ongoing related negotiations, overall, we remain optimistic.

While it’s too early to discern the likely outcome of these tariff announcements and negotiations, the current economic conditions and overall growth prospects for our markets continue to reflect a positive outlook. Overall, the Texas markets we serve remain healthy and continue to report both job and population growth. I look forward to answering your questions, and we’ll now turn the call over to Keith Dono.

Keith Donahoe, President, Southside Bancshares: Thank you, Lee. The second quarter new loan production totaled approximately approximately $293,000,000 compared to the first quarter production of $142,000,000 Of the new loan production, dollars $228,000,000 funded during the quarter with the remaining portion expected to fund over the next six to nine quarters. Despite strong new loan production, we continue to experience meaningful payoffs resulting in muted loan growth during the second quarter. Excluding regular amortization and line of credit activity, second quarter payoffs totaled $200,000,000 Consistent with the first quarter, commercial real estate loans continue to be the largest source of payoff. Second quarter’s commercial real estate payoffs totaled approximately $150,000,000 including 13 loans secured by a variety of property types, retail, medical, office, multifamily, industrial, and commercial land.

Commercial real estate payoffs were largely the result of open market property sales. However, two multifamily properties were refinanced with other lenders to include a life insurance company and a private debt fund. Both offered more aggressive loan to value limits and limited, if any, ongoing covenants. In addition to the commercial real estate payoffs, we experienced an unexpected $50,000,000 payoff in our oil and gas portfolio. This resulted from a private equity firm’s acquisition of a Southside customer.

For the remaining half of twenty twenty five, we anticipate moderated payoffs and new loan production consistent with the first half of twenty twenty five. However, we are slightly lowering our loan growth guidance to 3% to 4% year over year. Currently, our loan pipeline exceeds 2,100,000,000 representing a slight increase over first quarter’s ending pipeline of $1,900,000,000 The pipeline is well balanced with approximately 43% term loans and 57% construction and or commercial lines of credit. Historically, we closed between 2530% of our pipeline. Additionally, we are making progress with our C and I initiative, which now represents approximately 30% of our total pipeline, up from 25% at the end of first quarter.

Expansion of the Houston C and I team continued with two new relationship managers. One individual started in late June, and the other individual started in early July. Both have contributed to the expanded C and I pipeline. New C and I hires in the Houston market now stand at four individuals during the first six months Overall, quality remains strong.

During the second quarter, nonperforming assets increased slightly and remain concentrated in one large construction loan we moved into a nonperforming category during the first quarter. The loan is secured by a newly built multifamily project with positive leasing activity and a sponsor that has demonstrated a willingness and financial capacity to support. As a percentage of total assets, nonperforming assets remain unchanged at 0.39%. During the quarter, a $17,900,000 payoff of a classified loan was partially offset by the migration to classified of a $6,000,000 loan. Overall, classified loans decreased from $67,000,000 at the end of the first quarter to $55,400,000 at the end of the second quarter.

With that, I look forward to answering questions, and we’ll now turn the call over to Julie.

Julie Schamberger, CFO, Southside Bancshares: Thank you, Keith. Good morning, everyone, and welcome to our second quarter call. For the second quarter, we reported net income of $21,800,000 an increase of $306,000 or 1.4% compared to the first quarter and diluted earnings per share of $0.72 for the second quarter, an increase of $01 per share linked quarter. As of June 30, loans were $4,600,000,000 a linked quarter increase of $34,700,000 or 0.8%. The linked quarter increase was primarily driven by an increase of $28,800,000 in commercial real estate loans, dollars 12,300,000.0 in construction loans and $9,000,000 in commercial loans, partially offset by a decrease of $7,500,000 in municipal loans and $5,300,000 in one to four family residential loans.

The average rate of loans funded during the second quarter was approximately 6.9%. As of June 30, our loans with oil and gas industry exposure were $53,800,000 or 1.2% of total loans compared to $111,000,000 or 2.4% linked quarter. The decrease occurred primarily due to the payoff of a large loan relationship of approximately $50,000,000 Nonperforming assets remained low at 0.39% of total assets as of June 30. Our allowance for credit losses decreased to $48,300,000 for the linked quarter from $48,500,000 on March 31. And our allowance for loan losses as a percentage of total loans decreased slightly to 0.97% compared to 0.98% at March 31.

Our securities portfolio was $2,730,000,000 at June 30, a decrease of 6,200,000.0 or 0.02% from $2,740,000,000 last quarter. The decrease was driven primarily by maturities and principal payments. As of June 30, we had a net unrealized loss in the AFS securities portfolio of $60,400,000 an increase of $9,200,000 compared to $51,200,000 last quarter. There were no transfers of AFS securities during the second quarter. On June 30, the unrealized gain on the fair value hedges on municipal and mortgage backed securities was approximately $5,200,000 compared to $8,600,000 linked quarter.

The unrealized gain or this unrealized gain partially offset the unrealized losses in the AFS securities portfolio. As of June 30, the duration of the total securities portfolio was eight point four years, and the duration of the AFS portfolio was six point two years, a decrease from non and seven years, respectively, as of March 31. At quarter end, our mix of loans and securities was 6337%, respectively, consistent with last quarter. Deposits increased $41,100,000 or 0.6% on a linked quarter basis due to an increase in broker deposits of $61,000,000 and a $90,100,000 increase in commercial and retail deposits, partially offset by a decrease in public fund deposits of $109,900,000 The increase in commercial deposits was due to an account that increases for a short period at this time each year and is expected to exit the bank in the third quarter. Our capital ratios remain strong with all capital ratios well above the threshold for capital adequacy and well capitalized.

Liquidity resources remained solid with $2,330,000,000 in liquidity lines available as of June 30. We repurchased 424,435 shares of our common stock at an average price of $28.13 during the second quarter. Since quarter end and through July 23, we have repurchased 2,443 shares at an average price of $30.29 per share. We have approximately 156,000 shares remaining in the current repurchase authorization. Our tax equivalent net interest margin increased nine basis points on a linked quarter basis to 2.95% from 2.86%.

The tax equivalent net interest spread increased for the same period by seven basis points to 2.27%, up from 2.2%. For the three months ended June 30, we had an increase in net interest income of $414,000 or 0.8% compared to the linked quarter. Noninterest income, excluding net loss on the sales of AFS securities, increased $1,400,000 or 12.7% for the linked quarter, primarily due to an increase in swap fee income deposit services income. Non interest expense was $39,300,000 for the second quarter, an increase of $2,200,000 or 5.8% on a linked quarter basis, primarily driven by the $1,200,000 write off in demolition of an existing branch that was replaced with a new building. As certain items in our budget continue to materialize, we expect to be in the $39,000,000 range for the remaining quarters this year.

Our fully taxable equivalent efficiency ratio decreased to 53.7% as of June 30 from 55.04% as of March 31, primarily due to an increase in total revenue. We recorded income tax expense of $4,700,000 consistent with the prior quarter. Our effective tax rate was 17.8% for the second quarter, a decrease compared to 18% last quarter. We are currently estimating an annual effective tax rate of 18% for 2025. Thank you for joining us today.

This concludes our comments, and we will open the line for your questions.

Conference Operator: Thank you. To remove yourself from the queue, you may press 11 again. Please standby while we compile the Q and A roster. Our first question comes from the line of Michael Rose of Raymond James. Please go ahead, Michael.

Michael Rose, Analyst, Raymond James: I guess good afternoon. Thanks for taking my questions. We could start big We’ve seen a couple of deals here announced in Texas and more broadly, one bigger one last night. Just wanted to get a sense for what you see is potentially the dislocation opportunities from a hiring and client acquisition front. And then just given where you guys are on an asset side, just any updated thoughts around potential M and A for you all?

Thanks.

Lee Gibson, CEO, Southside Bancshares: Yes, thank you. I do agree that there’s some potential that we could pick up some people from some of these acquisitions, especially the out of state ones. And that’s a real possibility and certainly on our radar screen. It’s good to see the activity finally begin to happen in Texas, and we think that’s going to lead to additional sellers coming out of the woodwork, and we would like to be a part of that at some point in time if it strategically makes sense.

Michael Rose, Analyst, Raymond James: Okay, perfect. And then maybe just on credit front, just any update on multifamily credit that was added to restructure last year. Just wanted to see if that’s progressing as expected.

Keith Donahoe, President, Southside Bancshares: Michael, this is Keith. Yes, the loan continues to perform. Still haven’t had any missed payments, but the leasing activity on the asset continues to be positive. We do anticipate at the end of the year when the maturity hits that that loan will move out of the bank. And we don’t see any reason why we wouldn’t be able to do so at this point, but we are continuing to monitor the lease up activity.

Michael Rose, Analyst, Raymond James: All right, very helpful. And then maybe just one final one for me. It looks like you kind of effectively lowered your loan growth outlook, but I think that’s more of a function of maybe a little bit softer growth this quarter. So just wanted to confirm that because you did say pipelines were solid. Then if you could just kind of size the pipeline opportunity and maybe how much of the pipeline is comprised of kind of newer C and I loans around the efforts there?

Thanks.

Keith Donahoe, President, Southside Bancshares: Sure. Yeah. If you noticed, we produced more than twice the loans that we produced in the first quarter. So we’ve had a lot of momentum moving forward. We anticipate on the growth side that to continue.

The thing that’s been a little bit harder to judge for us has been the payoffs. We know we have some payoffs still to come. It’s the ones that kind of surprise us that we’re not 100% sure. We don’t know about the $50,000,000 oil and gas reduction was kind of out of the blue for us. But so we’re we’re really bullish on the fact that production is gonna be there.

We’re just not 100% sure what the payoff situation is gonna look like. You add to it the fact that we did increase our pipeline total from $1,900,000,000 at the end of first quarter to $2,100,000,000 So we’re seeing a lot of opportunity. We’re doing our best to compete with not just banks, but we’re starting to see a lot of competition from the debt funds. We’ve got some numbers on that. It’s a little bit surprising there.

We’re seeing debt funds that are now pricing deals that banks were getting from a spread standpoint six months ago. So debt funds are really aggressive with their spreads at this point. And as you know, they typically come with higher leverage and fewer covenants. So it’s a tough competition, but we still feel pretty good about the 2025 from a production standpoint. I hope that helps.

Michael Rose, Analyst, Raymond James: Yes. It’s great color. Really appreciate it. Thanks for taking my questions. I’ll step back.

Conference Operator: Thank you. Our next question comes from the line of Matt Olney of Stephens. Please go ahead,

Matt Olney, Analyst, Stephens: Hey, thanks for taking the question guys. I want to ask about the net interest margin and we saw some improvement this quarter. Any more color on just the puts and takes on the direction of that margin from here in the back half of the year? And then specifically, can you add some color on how dependent that margin outlook is on the loan growth? It sounds like the loan growth could be volatile based off the pay downs.

And just curious how much of a driver that is for the margin. Thanks.

Lee Gibson, CEO, Southside Bancshares: We’re 12 basis points for the year. And looking at the average balance sheet, average loans have been down for the year. So far, it hadn’t been dependent on loans. The encouraging thing is all that loan growth that we had occurred in the really the last two to three weeks of June. So in terms of our average loans, they’re at the highest point they’ve really been at this entire year.

So if we can continue to produce the loans, as Keith’s discussing, and we have pretty good insight into what’s going to happen in next couple of months, it’s payoffs that will be the difference. But if we can have net loan growth going forward, I think it’s going to do nothing but really accrue to our benefit when it comes to the outlook for the NIM for the last half of the year.

Matt Olney, Analyst, Stephens: Okay. So it sounds like the margin has some tailwinds with or without the loan growth. Maybe just some commentary on deposit competitions. Some of your peers in Texas are pointing towards increased competition that’s perhaps going to put up push up deposit pricing in the back half of the year in the absence of any kind of Fed cut. So I’m just curious what you’re seeing.

Lee Gibson, CEO, Southside Bancshares: We’re really not seeing that. We have focused previously in prior quarters on putting on CDs. A lot of those CDs are we had a lot that matured during the second quarter. We have another, I think, the next ninety days. We have a little over $430,000,000 that will mature.

We’re not going to be able to save as much money as we did in the first and the second quarter on the maturities. But we anticipate we’ll be able to lower the average rate on those CDs at least 10 basis points, if not just a little bit more. So that’s really where the relief is going to come. And who knows whether the Fed’s lower rates or what they’re going to do. But we believe that we will continue to see a little some relief in terms of pressure on deposit pricing over the last half of the year.

Keith Donahoe, President, Southside Bancshares: Okay, thanks guys.

Conference Operator: All right. Thank you. I would now like to turn the conference back to Lee Gibson for closing remarks.

Lee Gibson, CEO, Southside Bancshares: Thank you, everyone, for joining us today. We appreciate your interest in Southside Bancshares, along with the opportunity to answer your questions. Our excellent second quarter results only reinforces our optimistic outlook for 2025. We look forward to reporting third quarter results to you during our next earnings call in October. This concludes the call.

Thank you again.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.