Southside Bancshares (SBSI) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Senior Vice President, Investor Relations - Lindsey Bailes
• President and Chief Executive Officer - Keith Donahoe
• Chief Financial Officer - Julie N. Shamburger
• Chief Treasury Officer - Suni Davis

TAKEAWAYS

• Net Income -- $28 million, representing a 4.2% increase from the prior quarter and driven by higher net interest income.
• Diluted EPS -- $0.93, an increase of 3.3% on a linked-quarter basis.
• Tax-equivalent Net Interest Margin -- 3.0%, an increase of 12 basis points from 2.9% in the second quarter, reflecting improved loan and security yields.
• Return on Average Tangible Common Equity -- 16.3%, for the three months ended Sept. 30.
• Loan Growth Guidance -- moderated to low to mid-single digits for 2026, due to anticipated slowing in commercial real estate originations and continued payoffs.
• Total Loans -- $4.96 billion as of Sept. 30, a slight increase from $4.95 billion in the previous quarter.
• New Loan Production -- $400 million, with $276 million in funding during the third quarter.
• Loan Payoffs -- $281 million, heavily weighted toward commercial real estate, including four multifamily loans that accounted for over half of the total.
• Loan Pipeline -- $1.2 billion, a decrease from $1.4 billion at the end of the second quarter.
• Classified Loans -- $245.2 million as of Sept. 30, a decrease from $260.1 million on June 30.
• Nonperforming Assets -- $15.8 million, or 0.18% of total assets, representing a $6 million increase from the prior quarter primarily due to a single commercial real estate loan.
• C&I Loans -- 18% of the total loan portfolio, an increase from 16% at year-end 2025.
• Total Deposits -- $6.01 billion, a decrease of $155.6 million or 2.5% linked-quarter.
• Public Fund Deposits -- decreased $200.2 million, driven by $141 million in maturing certificates of deposit that were not renewed due to pricing competition.
• New Deposit Account Rates -- 2.6% on average, compared to an average of 1.6% for existing accounts.
• Wholesale Funding -- $1.7 billion, an increase of $334.3 million from the prior quarter to offset the decrease in public funds.
• Securities Portfolio -- $2.83 billion, an increase of $49.3 million or 1.8% linked-quarter.
• MBS Purchases -- $172.2 million, with an average yield of 5.8% and coupons ranging from 5% to 6%.
• Corporate Bond Purchases -- $19.5 million in investment-grade bank sub-debt yielding 6.6%.
• Noninterest Expense -- $39 million, with management forecasting an average of $40.5 million for the fourth quarter.
• Stock Repurchases -- 36,474 shares purchased since Sept. 30 at an average price of $30 per share, following zero repurchases during the third quarter.
• Loan Repricing -- approximately 55% of the loan book is expected to reprice over the next 90 days.
• Wealth Management Assets -- $1.8 billion under management, an increase from $1.5 billion as of Sept. 30, 2025.

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RISKS

• Donahoe stated, "Recognizing that commercial real estate originations may slow with recent rate increases, our expectation of continued payoffs, we are moderating our loan growth guidance to low to mid single digits for 2026," acknowledging the impact of rising rates on lending volume.
• Davis warned that the company expects to retain the majority of its certificates of deposit but believes there will be a near-term need to increase the rates offered due to competition, potentially impacting funding costs.
• Management noted that deposit competition is real and indicated that they anticipate continued upward pressure on pricing.

SUMMARY

Southside Bancshares, Inc. (NYSE:SBSI) reported third quarter results characterized by significant net interest margin expansion and stable asset quality despite moderating loan growth. Management reported that the tax-equivalent net interest margin benefited from improved yields on both loans and securities, while funding costs remained relatively flat during the quarter. The company adjusted its full-year loan growth expectations downward to reflect a slowing commercial real estate environment and anticipated payoffs. The strategic focus remains on expanding the commercial and industrial loan portfolio to drive stickier, lower-cost deposit growth. Additionally, the bank is continuing its geographic expansion in the North Texas market through new branch construction projects.

• Management reported that 55% of the loan book will reprice over the next 90 days, which is expected to be accretive to yields following recent Federal Reserve rate increases.
• Donahoe noted that while payoffs were high at $281 million, they contributed to a reduction in classified assets and reflected a healthy real estate portfolio where assets were successfully refinanced or sold.
• The company is expanding its presence south of Fort Worth with a new branch construction project in Burleson, Texas, following its ongoing project in the Celina Prosper area.
• Wealth management and trust services reported strong performance, with assets under management growing 20% compared to the prior year period.
• Davis indicated that the bank has been opportunistic with funding by utilizing the Federal Reserve discount window for the cheapest available wholesale rates while allowing some higher-priced public fund deposits to roll off.
• Management is actively exploring potential team lift-outs in metro markets to bolster commercial and industrial loan growth throughout 2027.

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, a component of shareholders' equity that includes unrealized gains and losses on certain investments.
• C&I: Commercial and Industrial loans, typically made to businesses for working capital or capital expenditures.
• FHLB: Federal Home Loan Bank, a government-sponsored enterprise that provides liquidity to member financial institutions.
• MBS: Mortgage-Backed Securities, investment securities representing an interest in a pool of mortgage loans.
• NIM: Net Interest Margin, the difference between the interest income earned and the interest paid to lenders, divided by the amount of interest-earning assets.
• NPA: Nonperforming Assets, which include loans that are no longer accruing interest and foreclosed real estate.
• ROAA: Return on Average Assets, a ratio that measures how profitable a company is relative to its total assets.
• ROTCE: Return on average Tangible Common Equity, a measure of a bank's profitability that excludes intangible assets like goodwill.
• SOFR: Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us. And welcome to Southside Bancshares Inc third quarter 26 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press *1. To raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Lindsey Bailes, senior vice president, investor relations. Lindsey. Please go ahead.

Lindsey Bailes: Thank you, Melissa. Good morning, everyone, and welcome to Southside Bancshares Third Quarter 26 Earnings Call. A transcript of today's call will be posted on southside.com under Investor Relations. During today's call and in other presentations and disclosures, I will 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 President and CEO, Keith Donahoe; CFO, Julie N. Shamburger; and Chief Treasury Officer, Suni Davis.

Keith will start us off with his comments on the quarter, then Julie will give an overview of our financial results, and Suni will end with comments on securities and funding. We will have a Q and A session following Suni's remarks. I will now turn the call over to Keith.

Keith Donahoe: Thank you, Lindsey, and welcome to today's call. Third quarter results are highlighted by $0.93 earnings per share a $1.27 return on average assets, a 31 return on average tangible common equity, and a 3.02% tangible equivalent net interest margin. Our tax equivalent net interest margin benefited from improved loan and security yields, and flat funding costs during the quarter. We expect the September fed rate increase to be accretive to fourth quarter loan yields as approximately 55% of our loan book will reprice over the next 90 days. Third quarter new loan production was strong, but largely offset by payoffs resulting in a relatively flat loan balance during the quarter.

Recognizing that commercial real estate originations may slow with recent rate increases, our expectation of continued payoffs, we are moderating our loan growth guidance to low to mid single digits for 2026. Third quarter new loan production totaled $400 million of which $276 million funded during the quarter. Excluding regular amortization and line of credit activity, third quarter payoffs totaled $281 million This was down slightly from second quarter payoffs, totaling $297 million. Third quarter payoffs are heavily weighted towards CRE, and include 4 multifamily loans accounting for just over half of our payoffs. On a positive note, these payoffs resulted in a $1 million decrease in classified assets for the quarter.

Our loan pipeline totals $1.2 billion today, down from the second quarter levels of $1.4 billion. We have issued term sheets on approximately $222 million of this pipeline with $99 million in the closing process. Commercial construction loans and commercial lines of credit represent approximately 56% of the pipeline while full funding term loans represent approximately 44%, a change from second quarter pipeline when term loans made up 52% of the total pipeline. C and I loans, including owner occupied real estate loans, increased approximately 5% during the quarter and now represent 18% of our total loan portfolio, up from 16% at year-end 2025. In addition, C and I opportunities represent approximately 24% of today's total pipeline.

Other notable quarter third quarter items include a newly hired director of treasury management, and the start of the second branch construction project. The new start is located south of Fort Worth in Burleson, Texas and expands our commitment to the greater Fort Worth market. Additionally, the Celina Prosper construction project continues to move forward with completion expected in the second quarter of 27. When considering our net income, earnings per share and other financial results, we had an excellent quarter. Overall, the markets we serve remain healthy and the Texas economy is anticipated to grow at a faster pace than the overall US growth rate.

With that, I look forward to answering questions, and I will turn the call over to Julie.

Julie N. Shamburger: Thank you, Keith. Good morning, everyone, and welcome to our third quarter earnings call. For the third quarter, we are pleased to report net income of $28 million, a linked quarter increase of $1.1 million or 4.2%. Diluted earnings per share were $0.93 for the third quarter up $0.03 per share linked quarter, a 3.3% increase. Loans increased slightly compared to the second quarter to $4.96 billion as of September 30, and the average rate of loans funded during the third quarter was approximately 6.1%, consistent with the second quarter and down from 6.3% in the first quarter.

As of September 30, our loans with oil and gas exposure were $54.6 million or 1.1% of total loans a decrease of $21.5 million compared to $76.1 million on June 30, driven by payoffs associated with 1 relationship. Nonperforming assets increased by $1 million or 61.6% linked quarter largely driven by a $5.2 million CRE loan that subsequently paid off in full on 10/1/2026. Nonperforming assets remain low on a linked quarter basis at 0.18% of total assets at quarter end. Our allowance for credit losses increased to $50.4 million from $49.3 million on June 30.

Linked quarter, our allowance for loan losses as a percentage of total loans increased 2 basis points to 0.94% at September 30 The securities portfolio increased $49.3 million or 1.8% to $2.83 billion on September 30, when compared to $2.78 billion on June 30 The increase was mainly driven by purchases of mortgage backed securities and to a lesser extent corporate bonds during the third quarter. As of September 30, we had a net unrealized loss in the AFS securities portfolio of $93.3 million, an increase of $83.5 million compared to $9.8 million last quarter. Which was driven by the increase in longer term rates.

On September 30, the unrealized gain on the fair value hedges on municipal and mortgage This unrealized gain partially offset the unrealized losses in the AFS portfolio. Our AOCI on September 30, 2026 had a net loss of $149.8 million compared to a net loss of $92.1 million on June 30, 2026. The net loss was comprised of net losses on our securities and swap derivatives of $133.9 million and $15.9 million related to our retirement plans. As of September 30, the duration of the total securities portfolio was 7.8 years, compared to 7.2 years at June 30. And the duration of the AFS portfolio was 5.9 years compared to 4.3 years on June 30.

At quarter end, our mix of loans and securities was 64/36%, respectively, consistent with the second quarter. Deposits decreased by $155.6 million or 2.5% on a linked-quarter basis. This was primarily driven by a decrease in public fund deposits of $200.2 million and an overall decrease in commercial and retail deposits of $4.8 million, partially offset by an increase in brokered deposits of $49.4 million. The net decrease in commercial and retail deposits resulted from the seasonal $99.1 million commercial escrow account that funded during the second quarter and rolled off in July. We remain well capitalized with strong capital ratios. Liquidity resources remain solid with $1.9 billion in liquidity lines available as of September 30.

We did not repurchase any common stock during the third quarter However, since quarter end, we purchased 36.5 thousand shares at an average price of $30 per share. Our tax equivalent net interest margin was 3.02%, an increase of 12 basis points on a linked quarter basis from 2.90% for the second quarter. Our tax equivalent net interest spread for the same period was 2.36%, an increase of 10 basis points from 26. The increase in the net interest margin and the net interest spread is primarily due to the higher yield on securities and loans and flat funding costs in the third quarter. Suni will provide details on the higher yield in the securities portfolio during her remarks.

For the 3 months ending September 30, we had an increase in net interest income of $3 million or 5.2% compared to the linked quarter. Noninterest income decreased $271 thousand or 1.9% for the linked quarter due to decreases in BOLI income and swap fees. and equity fair value adjustments included in other noninterest income. Our trust and brokerage services continue to perform well this quarter. Trust fees increased $259 thousand or 10.8% linked quarter and increased $1.5 million or 27% for the 9 months ending 9/30/2026, when compared to the same period last year. Wealth management and trust assets under management increased to $1.8 billion on September 30 compared to $1.5 billion on 9/30/2025.

Additionally, brokerage services income increased $137 thousand or 9.8% linked quarter and $795 thousand or 22.6% year to date compared to the same period in 2025. Noninterest expense was $39 million for the third quarter, an increase of $346 thousand or 0.9% compared to the linked quarter. The increase was largely driven by an increase in salaries and health expense. Our fully taxable equivalent efficiency ratio decreased to 51.55% as of September 30 from 52.96% last quarter due to the increase in net interest income, partially offset by the increase in noninterest expense. Our budget indicates average noninterest expense of approximately $40.5 million for the fourth quarter.

We recorded income tax expense of $6.3 million compared to $5.7 million in the prior quarter. An increase of $542 thousand or 9.4%. Our effective tax rate was 18.3% for the third quarter. Compared to 17.6% last quarter. And our current estimate for the 2026 annual effective tax rate is 18%. At this time, I will turn the call over to Suni.

Suni Davis: Thank you, Julie. There were several factors that contributed to the linked-quarter increase in securities income. Such as the average book balance increased approximately $11 million Amortization expense decreased $638 thousand Interest income on the fair value swap was $163 thousand. Cash flows reinvested brought approximately 35 basis points higher yields than those purchased in Q2. Also, various bank sub debt bonds repriced from fixed to floating, and we received a 1-time prepayment penalty on a CMBS of $65 thousand. The MBS purchases of $172.2 million in the third quarter of coupons ranging from 5% to 6%, A duration of 6.9 years and a yield of 5.75%. These were purchased at slight premiums.

Corporate bond purchases of bank sub debt were 19.5 million and were new issues of investment grade credits yielding an average rate of 6.63%. We expect to reinvest future cash flows from the securities portfolio into AFS MBS and potentially to a lesser extent, into bank sub debt while maintaining the balance of securities at approximately $2.8 billion The principal cash flows we received during the quarter were $55.6 million, a decrease of $53.9 million linked quarter. The spot rate on our CDs was 3.62% at quarter-end. A decrease of 5 basis points linked quarter. The average rate was 3.62% during the third quarter. A 7 basis point decrease from Q2.

CDs totaling $517 million with an average rate of 3.63% will reprice in Q4. We expect to retain the majority of these deposits, but believe there will be a near term need to increase the rates offered. Due to competition. Additionally,, $1 billion in CDs with an average rate of 3.64% will reprice in the next 12 months. We adjusted CD rates and high yield savings rates after the Fed funds increase in September. Maintaining an approximate average beta of 35% on those accounts. Our public fund deposits decreased $200.2 million in the third quarter. Approximately $141 million was due to maturing CDs requiring renewal rates we were unwilling to pay.

The remaining decrease was due primarily to construction draws from bond funds. We have certain nonmaturity deposit accounts with exception pricing. There were no interest rate adjustments to these accounts in Q3 other than on an individual basis. We have seen a higher cost on recently acquired deposit accounts versus existing accounts. In the third quarter, new deposit accounts, including CDs, but excluding brokered and public funds, had an average rate of 2.64% versus existing accounts averaging 1.57%. Specific-priced deposits were 339 million at quarter end, a decrease of $21.6 million linked quarter. Many of these accounts are included in the exception pricing. Approximately 83% are commercial and 17% are consumer.

Linked quarter, our wholesale funding increased $334.3 million to $1.7 billion This includes an increase in broker deposits of $49.4 million The increase was primarily due to a decrease in public fund deposits and an increase in the book value of securities. Our cash flow hedge notional remains at $615 million with no maturities or additions in Q3. The next maturity is a $25 million notional maturing in November currently at a rate of 4.75%. After this maturity and some amortization related to past unwind, is fully expensed in October, the rate on our current cash flow hedges will drop approximately 25 basis points, assuming current spreads.

However, if we were to replace the Q1 27 maturities at current rates, that $160 million would reprice up approximately 150 basis points. We have a notional of $291.1 million in fair value swap on municipal and MBS securities. This is a reduction of $67 million linked quarter due to an MBS maturity on September 1. Approximately 37% of our loans have fixed rates and 63% have a floating rate, with approximately 82% of our floating rate loans having floors. We have approximately $318 million in fixed rate loans that mature or repriced in the next 12 months. $131.1 million of those are in Q4.

Of the loans maturing or repricing in the next 12 months, $137.5 million have an average rate of 3.7%. We are currently modeling Fed funds to be flat for the remainder of 2026 as forecast by Wood's. Should rates increase in the short term, we could expect a positive impact on net interest income since we are asset sensitive. We are modeling a beta of 39% on non maturity deposits. Thank you for joining us today. This concludes our prepared remarks, and we will now open the line for your questions.

Operator: Will now begin the question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device Please stand by while we compile the Q&A roster. Your first question comes from the line of Brett Rabatin with StoneX Group. Your line is now open. Please go ahead.

Brett Rabatin: Hey. Good morning, everybody. Thanks for the questions. Wanted to first start off on the margin and the securities yields. It sounded. It seems like there was a lot of noise in the linked quarter change the yield. Like, I was trying to write down all the numbers. You guys were mentioning about the various items that impacted that. Does the securities portfolio yield hold at these levels? Or could there be some atrophy And then I guess I am just curious, your talking about being asset sensitive, but it does seem like you have done a great job managing the funding costs here, particularly in 3Q.

And it is what it sounds like maybe the fourth quarter might be, somewhat higher in terms of the funding cost. So it was just hoping to encapsulate all of the variables there that I know the margin is hard to predict, but I was just trying to understand a little bit better what might happen from here.

Suni Davis: Okay. So on the securities portfolio, of course, we had the 1 time CMBS prepayment of $65 thousand. And some of that fair value swap income, the $103 thousand is related to ineffectiveness. And that was an expense to us in the first half of the year. It flipped. So it is now. It was now income in the third quarter. So the fourth quarter, I do not see the same amount of change. As far as. I mean, the yield on the purchases I mean, I see that holding because our prepays have slowed down. You know, it was $638 thousand decrease in our amortization expense linked quarter. So I see that being consistent in the fourth quarter.

I mean, not down another $638 thousand but being flat in Q4 to Q3. Because we have not we have not seen the huge prepayment that we saw in the first quarter and into April.

Keith Donahoe: Of this year. Yeah. On the on the loan side, yeah, we spent a lot of time over the last 2 years making sure that the new real estate transactions we are booking for the most part are floating rate transactions Customers are always interested in know, interest rate protection, so we are putting them into back to back swaps. And we have done a really good job of that in the last couple of years. And so 55% of our book is floating. And we are. Well, actually, floating is a little bit higher, but 55% of our book will be repricing, and most of that repricing has now happened since the Fed moved in September.

We only had 2 weeks of that benefit in the third quarter, so I am pretty bullish on the fact that as. If rates continue to move up, we are gonna see the benefit There will be some. Somewhat of a lag, but most of that loan portfolio is priced at a floating transaction that is 30 days SOFR plus a spread. So I mean, on the funding side, we will see some increase in our CDs that are coming up for repricing because, you know, they are gonna be pricing probably into the $3.90 range from an average. They are averaging right now in below 3.60s. And on wholesale, at quarter end, our non swap wholesale was 4.03%.

I see that increasing. I am gonna try to keep it around 4.10%, but it could creep up to 4.15%. But I think these are smaller dollar amounts, and the betas on the CDs for sure are smaller than the betas on the loan side. The loan amounts are higher, and the betas are 100%.

Brett Rabatin: Okay. that is good color. And then I saw that the. Yeah. You had the past due payoff and classifieds down to $2.45 million from $2.60 million. Was just hoping to get any additional color I know there is several multifamily projects in Austin that you guys have been working on. Just was hoping for maybe any update on those and, you know, how you guys kind of see asset quality from here. You obviously had no charge offs this quarter, so credit continues to be fairly benign. But was just hoping for some additional color on those. Those properties.

Keith Donahoe: Yeah. I guess I want to reiterate We are very conservative with our risk rating. And that comes from a lot of experience in the real estate market in particular where we know the sooner you identify struggles, the easier it is to manage. And so we are pretty good and focused on making sure that we are identifying issues early as a result, you saw somewhat of a spike in our classified assets earlier in the year. We did not and still do not see any true losses coming out of those larger real estate transactions.

And as indicated by the fact that we have not seen the charge offs, and we continue to see a reduction in our classified assets. Many of these assets are the 4 that paid off, the 4 multifamily assets that paid off in the third quarter, 2 of them were refinanced by life companies. 1 was I think, refinanced by debt fund, and 1 was a open market sale. So, it is a sign of a healthy real estate portfolio in spite of the fact that we are pretty critical on our risk rating.

So I anticipate more of the same. there is nothing that is sticking out for sure in the near term that it causes me any concern. there is always surprises, but we hope that we are engaged with our lending staff early and often to identify those. But right now, there is nothing on the horizon that indicates any major issues. Okay. that is really helpful. Thanks so much.

Operator: Your next question comes from the line of Woody Lay with KBW. Your line is now open. Please go ahead.

Woody Lay: Hey guys, I wanted to start out on the margin again. And if I think back to last quarter, we had talked about the potential for additional NIM pressure unless we get a rate hike. Well, we got the rate hike, and it but it came kind of at the end of the quarter. So it feels like the margin outperformed expectations.

Keith Donahoe: And I was just curious on from your perspective, what were the biggest surprises in your view that allowed for this positive snapback? I think 1 of them is we were pleasantly surprised that we won a couple of loan transactions that have slightly higher spreads which helped. But in addition to that, I think Suni and her team has done a great job on managing the funding cost. So, Suni, you want to add anything?

Suni Davis: No. I mean, we have just been very diligent about it, and we have moved our sources. As you can see, we went back into the brokered market some. We have continued to do that in Q4 just because those rates have come down, and we have seen their advantages over borrowing from FHLB. We have maxed out our collateral at the discount window and continue to borrow there because that is the cheapest rate that we can get wholesale wise. And, you know, we unfortunately, we had to let some public funds go, and so that was due to rate.

So we are just watching and, you know, just being opportunistic with funding and being cautious with our exception pricing as well. I mean, we get request multiple times a day for exception pricing on deposit accounts. And you know, we set some parameters around that and I think we did well with that in Q3.

Keith Donahoe: That help, Woody?

Woody Lay: Got it. Yeah. No. that is that is really helpful. And I guess because you have been very active on the liability optimization to find the best rate. Sometimes it can be a little bit tough from my seat to get a sense of the court deposit trends given some of the movement. And I was just curious if you all had a spot rate cost of deposits at the end of the month and just general expectations for deposit cost from here post rate hike.

Keith Donahoe: I am looking at Suni. I do not know if we have that specific number.

Julie N. Shamburger: I mean, on cost of deposit, Woody, they were $1.89 in the third quarter. Versus $1.94 in June 30 quarter?

Keith Donahoe: Yeah. That is Yeah.

Woody Lay: I just did not know if you had a spot cost, post rate hike and No. You know, the direction that is trending?

Suni Davis: I had it for CDs. It was $3.62 for CDs, and then our existing deposit base was $1.57, including CDs, but not including brokered and public funds at quarter end.

Keith Donahoe: And then the newly put on deposits was the higher, what was it, $22.62 ish during the quarter? So, yeah, as we are. You know, deposit competition is real. And we are gonna see upward pressure on our pricing. We are doing. We do have some initiatives in place that they are not going to, move the needle tomorrow, but over time, they will whereby we are actively that. 1 reason I highlighted the growth in our c and I business is because we truly believe that c and I business drags in more deposits, stickier deposits, and a lot of times cheaper priced deposits because you get larger non interest bearing accounts.

And so, we are very focused on that as an organization. And as we grow into the metro markets that is. Our growth pattern is gonna lead with C and I We have got real estate covered. And we will continue to grow that book. But the C and I is really about its loan growth, but it is also deposit growth. Geared Yeah. I appreciate the color. I guess just last for me. You know, it was good to hear you all positively surprised on some of the loan yields you are getting on a couple of you know, on a couple of credits. And just curious how that pricing and spread has held up, so far in October.

Yeah. And, you know, do not do not get me wrong. it is still competitive out there, and where you may see some lift, and I do not have these numbers, but you know, we have booked quite a few construction loans that over the last 18 months, that are going to start funding up The ones that were booked, you know, a year ago to 18 months ago had significantly higher spreads. And so we will benefit from that over the next you know, 6 months as they start to fund up.

So I will maybe before the next call, I will have some color on what we anticipate from a construction draw funding because those spreads are higher But it is still hand to hand combat both on spreads. On loan spreads as well as deposit pricing. Yeah. Alright. Well, great. Thanks for taking my questions.

Operator: Thank you. You are Your next question comes from the line of Michael Rose with Raymond James. Your line is now open. Please go ahead.

Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just wanted to go back to some of the comments you made, Keith, on loan production and pipelines. And I think you said the pipeline was down. About $200 million from last quarter. Obviously, you have had some payoffs and rates probably gonna move higher at least 1 more time. We will see. But how should we think about the payoffs? And, I know, obviously, just given what you have had over the past couple quarters, the loan growth for the full year is a little bit subdued versus your prior expectations.

But as we contemplate next year with likely some continued CRE payoffs and ongoing growth in other parts of the business. I mean, kind of the low to mid single digits the way we should at least initially think about growth for next year? Thanks.

Keith Donahoe: Yeah, you know what? I would not expect a drastic change in 2027. We are putting in place, so we are. We got a couple of initiatives to help even out the loan growth, if you will. Historically, we have not spent a lot of time on the retail side of the business. We have an effort in place right now to grow our consumer lending business. that is. Some of that is gonna come through a home equity line of credit product that we actually is out and available to customers today. Just started in the last 30 days.

So we are hopeful that helps move some needles We are also focused on just general consumer lending and if you go back and look at our numbers over the last 10 years, that portfolio is just declined every year. We are gonna try to turn that around. I am not telling you we are gonna book a $100 million worth of that next year, but it is something we are focused on. In addition, we are actively engaged with potential team lift outs in different markets. As everybody knows, there is been a lot of disruption in the metro markets in particular, although we have also seen it here in the East Texas market.

And we are many of those folks are not in a position to make that move yet. But I do think you know, early 27 and throughout 2027, those opportunities are gonna come our way. And we are actively looking. Those will not have an immediate impact on loan growth. But they will over the next 24 months. To 36 months. that is helpful color, Keith. I appreciate all the commentary. Maybe just as a follow-up with good to see you guys repurchased some stock after kind of quarter end capital levels obviously still very strong. I know the TCE impacted by the AOCI impacts that you and others are facing. Should we think about buybacks from here?

And I know you previously talked about M and A. Just any updated thoughts there? Yes. I guess 1 way to say it is, unfortunately, when you see us buying stock, it is because our stock is trading below where we think it should be. So we will. We will continue to be opportunistic with those purchases. And, you know, and acquisition is still something that is likely in our future. I continue to meet folks and have discussions, but there is obviously nothing active today. But we do think in 2027, there may be some opportunities that come our way.

Michael Rose: Alright. For taking my questions.

Operator: Your next question comes from the line of Matthew Covington Olney with Stephens. Your line is now open. Please go ahead.

Matthew Covington Olney: Hey. Thanks for taking the questions. I want to ask about your loan-to-deposit ratio, is now, I think, a little over 80%, the highest we have seen in a while. Curious kind of your expectations here. Can this continue to move higher? Just any thoughts there? Thanks.

Keith Donahoe: Yeah. You know, we I cannot tell you it is not gonna go a little bit higher, but we are, it all depends on our ability to go gather deposits. Oh, and broker deposits might have a positive effect on that ratio as we move back into that Again, we are pretty opportunistic, and Suni's team really literally daily manages that funding side. And so, that was probably the biggest hit. It was not. As you could tell, it was not. We were not out stripping loan growth from our deposits. We just moved out of broker deposits earlier this year that spiked that ratio. Got it.

Matthew Covington Olney: And, Keith, on the brokerage side, is there any strategic target or percent of deposits that you are targeting for brokered versus non brokered?

Keith Donahoe: We have internal limits, but, no, there is not a target. it is just as long as we need wholesale, we are just looking for the best rate Okay.

Matthew Covington Olney: Appreciate that. And then Keith, you mentioned the strong C and I growth, and it sounds like some good pipelines there. Any more color? I think you made some nice hires over the last few years. I would assume some of this pipeline growth is from those new hires. Any more color on the C and I performance?

Keith Donahoe: Yeah. Some of that is coming from the Houston team that was you know, we have now been together a couple years So they are starting. They really are starting to get their footing. A lot of that growth also came right out of our East Texas markets. We have you know, as I have pointed out a number of times, long done c and I throughout East And Southeast Texas, and we do it really well.

And we have had some, we have had some hires that, here in the East Texas market that is really helped draw or drive some of that, and we are anticipating a handful of other hires in the East Texas and Southeast Texas markets that can help do that as well. Okay. Thanks for the color. I will step back.

Operator: Your next question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open. Please go ahead.

Stephen Scouten: Hey. Appreciate the time here. Thank you. Maybe going back to the NIM outperformance here in the quarter, I mean, it is great to see cost of deposits down 5 bps. Seem to be the primary driver Is the kind of anticipated pressure on funding costs, is that primarily dependent on loan and overall balance sheet growth? Is it just that you were able to shrink deposit this quarter because of the lack of loan growth that kept that pressure from manifesting. Is that kinda the right way to think about it?

Keith Donahoe: Do you do you want a pencil? I do not know that is the. We had a seasonal deposit relationship that spiked in the second quarter, paid off in the third quarter, and it moved out in the third quarter. So some of that contributed to our you know, our deposit reduction. But I think you know, as. 1 thing that you know, because of the effort we have done with moving to a more floating rate book, so far, our loans have repriced at a higher rate than what our deposit growth. Or our deposit cost increase has been. We anticipate that to continue.

I know I would love to say that we can keep it at a 15 basis point delta, but as long as we are able to reprice the loans faster, which this is different it is something that everybody ought to be aware of. The last time rates rose, we were not in a position to reprice our book loan book as fast as we are able to reprice our loan book today. So in addition, Suni pointed out, we have got about a $131 million in loans that come up from maturity or repricing in the fourth quarter. And those rates right now in that book is about $4.74, I think you said. $4.75.

And so we anticipate moving those to, you know, more market rates that will help also improve the loan yields.

Stephen Scouten: Got it. And have you guys quantified at all kind of the impact of each potential 25 base point hike on the NIM? We get these 2 more hikes that the forward curve suggests Is that a couple basis point per hike? Or do you have a number that proxy there?

Keith Donahoe: Have not run that number specifically. We are making a note We will see when we get that out to you.

Stephen Scouten: Okay. Great. And then just thinking about the securities book, it sounds like you guys are increasing the duration of the securities book a bit. Can you talk to me about the strategy there or maybe what that signals about where you think rates could be going over the, I guess, longer term maybe? Just any color would be great.

Suni Davis: That was. That had more to do with the rising rate environment. Stretching out the duration than intentional movement by us.

Keith Donahoe: You know, in a in a perfect world, I would love to see a 3 to 4 year duration. Our entire securities book, but with almost half of it, it did not help HTM. We are not able to do that. But hopefully, that answers your question.

Stephen Scouten: Yeah. that is good. And then just lastly, with the move to more C and I loans on your books, and in the pipeline as well, should we expect to see the loan loss reserve as a percentage of loans increase kinda in tandem with that increase in C and I loans? Do you hold more reserves against those loans than the CRE loans?

Keith Donahoe: You know, I have not I have not dug in specifically on that. I do not anticipate it having a material effect. And 1 reason is because as tight as we are on real estate credit, we are probably a little more tighter on c and I credit. So We can. I will look at that number, and maybe provide some guidance on that in the. On future meetings. But right now, I. it is not something that I anticipate to be a material increase in reserves.

Julie N. Shamburger: Yeah. Because we are just About a 1.11 coverage on the commercial. The pure commercial, not any real estate. Just Yep.

Keith Donahoe: I do not know if you heard that. Probably not. I was She's been seeing, but Julie said that we have a 1.11% coverage on just pure commercial.

Julie N. Shamburger: It does not include commercial owner occupied. Yeah. No. It does not align. Owner occupied.

Keith Donahoe: But and those are those are higher.

Stephen Scouten: So maybe a little bit higher then, but not but not materially because you guys remain very tight on that credit box. So that is that is great to hear. Okay.

Keith Donahoe: Fantastic. Yeah. Thanks for all the color today. Appreciate it. Thanks, Stephen.

Operator: There are no further questions at this time. I will now turn the call back to Keith Donahoe, president and CEO, for closing remarks.

Keith Donahoe: Thank you everyone for joining us today. We appreciate your interest in Southside Bancshares along with the opportunity to answer your questions. We are optimistic about 2026 and moving forward into 2027. And look forward to joining you on the earnings call in January. Thank you.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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