Southside Bancshares Q2 Earnings Call Highlights

Southside Bancshares (NYSE:SBSI) reported second-quarter 2026 net income of $26.8 million, up $3.6 million, or 15.4%, from the prior quarter, as higher non-interest income and lower expenses more than offset pressure on net interest income. Diluted earnings per share rose to $0.90 from the preceding quarter. President and CEO Keith Donahoe said the company generated a return on average assets of 1.23% and a return on average tangible common equity of 16.09%. “We had an excellent quarter,” Donahoe said, adding that the Texas markets served by the bank remain healthy and are expected to grow faster than the broader U.S. economy. Loan Production Rises, but Payoffs Keep Balances Flat Total loans were essentially unchanged from the first quarter at $4.95 billion as elevated loan payoffs offset stronger originations. New loan production totaled $487 million during the second quarter, compared with $431 million in the first quarter and $327 million in the fourth quarter of 2025. About $300 million of second-quarter production funded during the period, while the remaining portion is expected to fund over the next six to nine quarters. Excluding regular amortization and line-of-credit activity, loan payoffs were $297 million, up from $113 million in the first quarter. Donahoe said the payoffs were heavily weighted toward commercial real estate, including five multifamily loans that represented just under half of total payoffs. He said some additional payoffs are anticipated in the third quarter, although management continued to target mid-single-digit loan growth for 2026. The company’s loan pipeline stood at $1.47 billion, compared with approximately $1.3 billion in the first quarter. Loans that had been won but not yet closed totaled just over $287 million. The pipeline was composed of about 52% term loans and 48% construction loans or commercial lines of credit. Commercial and industrial loans, including owner-occupied real estate loans, increased 8.5% since year-end 2025 and accounted for approximately 17% of total loans, up from 16% at the end of 2025. C&I opportunities represented about 22% of the current pipeline. Credit Metrics Remain Low; Classified Assets Decline Classified assets declined $31 million during the quarter, primarily due to the commercial real estate payoffs. Donahoe said the company expects further reductions in classified assets during the third quarter as certain property owners pursue open-market sales or refinancing. Addressing questions on the commercial real estate portfolio, Donahoe said management does not anticipate losses within that portfolio. He said many classified multifamily properties were formerly construction loans that have entered lease-up phases, with occupancy increasing despite lower rental rates. “There’s still liquidity in the market” for sales and refinancing, Donahoe said. Nonperforming assets remained at 0.11% of total assets at June 30. The allowance for credit losses decreased slightly to $49.3 million from $49.6 million at March 31, while the allowance for loan losses represented 0.92% of total loans, down one basis point from the prior quarter. Oil and gas exposure was $76.1 million, or 1.5% of total loans, compared with $72.1 million in the first quarter. Funding Costs Pressure Margin Tax-equivalent net interest margin fell 11 basis points from the first quarter to 2.90%, while tax-equivalent net interest spread declined 12 basis points to 2.26%. Net interest income decreased $355,000, or 0.6%, from the first quarter. Management attributed the margin decline to a lower yield on earning assets and higher funding costs, including increased wholesale borrowings. Donahoe also cited the maturity of $245 million in cash-flow hedges during the first quarter and changes in the company’s funding mix.