Q3 2025 Southside Bancshares Inc Earnings Call

Speaker #1: Thank you for standing by . At this time I would like to welcome everyone to the Southside Bancshares , Inc. . Third Quarter 2020 Earnings Call .

Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Southside Bancshares Inc. Third Quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Lindsey Bailes, Investor Relations Officer. You may begin.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Speaker #1: If you would like to ask a question during this time, simply press star, followed by the one on your telephone keypad.

Speaker #1: If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Lindsey Bailes, Investor Relations Officer.

Speaker #1: You may begin .

Speaker #2: Thank you . Jeannie . Good morning , everyone , and welcome to Southside Bancshares Third Quarter 2020 Earnings Call . A transcript of today's call will be posted on social under Investor Relations during today's call , and another disclosures and presentations .

Lindsey Bailes: Thank you, Jeannie. Good morning, everyone, and welcome to Southside Bancshares Inc. Third Quarter 2025 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'll remind you forward-looking statements are subject to risk and uncertainties. Factors that could materially change our current forward-looking assumptions are described in our earnings release in our Form 10-K. Joining me today are Lee Gibson, CEO, Keith Donahoe, President, and CFO Julie Shamburger. First, Lee will start us off with his comments on the quarter. Keith will discuss loans and credit, and Julie will give an overview of our financial results. I will now turn the call over to Lee.

Speaker #2: I'll remind you that 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 in our Form 10-K.

Speaker #2: Joining me today are Lee Gibson, CEO; Keith Donahoe, President and CFO; and Julie Shamburger. First, we will start us off with his comments on the quarter.

Speaker #2: Then Keith will discuss loans and credit. After that, Julie will give an overview of our financial results. I will now turn the call over to Leigh.

Speaker #3: Thank you . Lindsay , and welcome to today's call . I'm going to start by discussing the repositioning of our available for sale securities portfolio during the quarter .

Lee Gibson: Thank you, Lindsey, and welcome to today's call. I'm going to start by discussing the repositioning of our available-for-sale (AFS) securities portfolio. During the quarter, as market conditions allowed, we took the opportunity to sell approximately $325 million of lower-yielding, long-duration municipal securities and, to a lesser extent, mortgage-backed securities and booked a net loss of $24.4 million. These securities had a combined taxable equivalent yield of approximately 3.28%. Most of these sales occurred in September. The net proceeds from these sales partially funded loan growth during the quarter, with the balance reinvested in agency mortgage-backed pools that had primarily 5.5% and 6.0% coupons and, to a lesser extent, Texas municipal securities with coupons ranging from 5% to 5.75%. The sale of these securities will not only enhance future net interest income, but it also provides for additional balance sheet flexibility as we grow.

Speaker #3: As market conditions allowed . We took the opportunity to sell approximately $325 million of lower yielding , long duration municipal securities and to a lesser extent , mortgage backed securities , and booked a net loss of $24.4 million .

Speaker #3: These securities had a combined taxable equivalent yield of approximately 3.28% . Most of these sales occurred in September . The net proceeds from these sales partially funded loan growth during the quarter , with the balance reinvested in agency mortgage backed pools that had primarily five and a half and 6% coupons , and to a lesser extent , Texas Municipal Securities , with coupons ranging from 5% to 5.75 .

Speaker #3: The sale of these securities will not only enhance future net interest income , but it also provides for additional balance sheet flexibility as we grow , we estimate the payback of this loss to be less than four years as previously disclosed , we issued $150 million of subordinated debt at 7% , fixed to floating rate notes .

Lee Gibson: We estimate the payback of this loss to be less than four years. As previously disclosed, we issued $150 million of subordinated notes at 7% fixed to floating rate notes in mid-August. Linked quarter, our net interest income increased $1.45 million, and our net interest margin decreased one basis point due to the issuance of the subordinated notes during the quarter. When considering our net income, earnings per share, and other financial results, excluding the one-time loss on the sale of securities, we had an excellent quarter. Linked quarter, non-interest income continued to perform well, and loans increased to $163 million, with $81 million of that growth occurring on September 30. Keith will provide additional commentary about our loan portfolio and third quarter loan growth. The repositioning of the securities portfolio, combined with the late third quarter loan growth, sets up an optimistic outlook for net interest income.

Speaker #3: In mid-August, linked quarter, our net interest income increased $1.45 million, and our net interest margin decreased one basis point due to the issuance of the subordinated debt during the quarter.

Speaker #3: When considering our net income , earnings per share and other financial results , excluding the one time loss on the sale of securities , we had an excellent quarter linked quarter .

Speaker #3: Non-interest income continued to perform well, and loans increased by $163 million, with $81 million of that growth occurring on September 30th. Keith Donahoe will provide additional commentary about our loan portfolio and third quarter loan growth.

Speaker #3: The repositioning of the securities portfolio, combined with the late third-quarter loan growth, sets up an optimistic outlook for net interest income.

Speaker #3: If the current favorable swap markets remain, we will look for additional opportunities to enter into swaps. Overall, the markets we serve remain healthy, and the Texas economy continues to be anticipated to grow at a faster pace than the overall U.S.

Lee Gibson: If the current favorable swap markets remain, we will look for additional opportunities to enter into swaps. Overall, the markets we serve remain healthy, and the Texas economy continues to be anticipated to grow at a faster pace than the overall U.S. growth rate. I look forward to answering your questions, and we'll now turn the call over to Keith Donahoe.

Speaker #3: growth rate . I look forward to answering your questions and will now turn the call over to Keith Donahoe . Thank you . Third quarter new loan production totaled approximately $500 million compared to the second quarter production of 290 million of the new loan production , 281 million .

Keith Donahoe: Thank you. Lee, third quarter new loan production totaled approximately $500 million compared to the second quarter production of $290 million. Of the new loan production, $281 million approximately funded during the third quarter, including the $81 million Lee referenced, which closed on the last day of the quarter. We expect the unfunded portion of this quarter's production to fund over the next six to nine quarters, likely weighted towards the back end of those quarters, given the construction nature of those opportunities. Excluding regular amortization and line of credit activity, third quarter payoffs totaled approximately $116 million, a significant improvement from second quarter payoffs totaling approximately $200 million. Third quarter commercial real estate payoffs included approximately 15 loans secured by retail, multifamily, industrial, skilled nursing facilities, and some commercial land. Commercial real estate payoffs continue to be largely driven by open market property sales.

Speaker #3: Approximately funded during the third quarter , including the 81 million Lee reference , which closed on the last day of the quarter . We expect the unfunded portion of this quarter's production to fund over the next 6 to 9 quarters , likely weighted towards the back end of those quarters .

Speaker #3: Given the construction nature of those opportunities, excluding regular amortization and line of credit activity, third quarter payoffs totaled approximately $116 million, a significant improvement from second quarter payoffs.

Speaker #3: Totaling approximately 200 million . Third quarter commercial real estate payoffs included 1515 loans secured by retail , multifamily , industrial , skilled nursing facilities , and some commercial land .

Speaker #3: Commercial real estate payoffs continue to be largely driven by open market property sales. However, two retail properties were refinanced with other bank lenders offering fixed rates using spreads below our target.

Keith Donahoe: However, two retail properties were refinanced with other bank lenders offering fixed rates using spreads below our target. After back-to-back strong production quarters, our loan pipeline dipped to approximately $1.5 billion mid-quarter, but has rebounded to $1.8 billion today. While lower than the prior two quarters, it remains elevated compared to the same period in 2024. The pipeline is well balanced with approximately 42% term loans and 58% construction and/or commercial lines of credit. P&I related opportunities represent approximately 22% of today's total pipeline compared to approximately 30% last quarter. This reduction is largely due to closing a new $20 million C&I relationship, which originated in our East Texas market. Credit quality remains strong. During the third quarter, non-performing assets increased to approximately $2.7 million, but remained concentrated in the previously disclosed $27.5 million multifamily loan that was moved into the non-performing category during the first quarter.

Speaker #3: After back to back strong production quarters . Our loan pipeline dipped to approximately 1.5 billion mid-quarter but has rebounded to 1.8 billion today , while lower than the prior two quarters .

Speaker #3: It remains elevated compared to the same period in 2020 . For the pipeline is well balanced with approximately 42% term loans and 58% construction and or commercial lines of credit , CNI related opportunities represent approximately 22% of today's total pipeline , compared to approximately 30% last quarter .

Speaker #3: This reduction is largely due to closing a new $20 million CNI relationship, which originated in our East Texas market, as credit quality remains strong during the third quarter.

Speaker #3: Non-performing assets increased approximately $2.7 million but remained concentrated in the previously disclosed $27.5 million multifamily loan that was moved into the non-performing category during the first quarter.

Speaker #3: We continue to expect this to be this loan , to be refinanced or rightsized before the end of the year , and overall , as a percentage of total assets , non-performing assets was at 0.42% .

Keith Donahoe: We continue to expect this loan to be refinanced or right-sized before the end of the year. Overall, as a percentage of total assets, non-performing assets is at 0.42%. With that, I will turn the meeting over to Julie.

Speaker #3: With that, I will turn the meeting over to Julie.

Speaker #2: Keith .

Lindsey Bailes: Thank you, Keith. Good morning, everyone, and welcome to our third quarter call. For the third quarter, we reported net income of $4.9 million, a decrease of $16.9 million, or 77.5%. Diluted earnings per share were $0.16 for the third quarter, a decrease of $0.56 per share linked quarter. As of September 30, loans were $4.77 billion, a linked quarter increase of $163.4 million, or 3.5%. The linked quarter increase was driven by an increase of $82.6 million in commercial real estate loans, $49.3 million in commercial loans, and $49.1 million in construction loans, partially offset by a decrease of $10.4 million in municipal loans and $6 million in one-to-four family residential loans. The average rate of loans funded during the third quarter was approximately 6.7%.

Speaker #4: Good morning , everyone , and welcome to our third quarter call . For the third quarter . We reported net income of $4.9 million , a decrease of $16.9 million , or 77.5% diluted earnings per share were $0.16 for the third quarter .

Speaker #4: It decreased to $0.56 per share , linked quarter . As of September 30th , loans were 4.77 billion . The linked quarter increase of $163.4 million , or 3.5% .

Speaker #4: The linked quarter increase was driven by an increase of $82.6 million in commercial real estate loans, $49.3 million in commercial loans, and $49.1 million in construction loans, partially offset by a decrease of $10.4 million in municipal loans and $6 million in 1 to 4 family residential loans.

Speaker #4: The average rate of loans funded during the third quarter was approximately 6.7% . As of September 30th , our loans with oil and gas industry exposure were 70.6 million , or 1.5% of total loans , compared to 53.8 million , or 1.2% linked quarter nonperforming assets remained low at 0.42% of total assets as of September 30th .

Lindsey Bailes: As of September 30, our loans with oil and gas industry exposure were $70.6 million, or 1.5% of total loans, compared to $53.8 million, or 1.2% linked quarter. Non-performing assets remained low at 0.42% of total assets as of September 30. Our allowance for credit losses increased to $48.5 million for the linked quarter from $48.3 million on June 30, and our allowance for loan losses as a percentage of total loans decreased to 0.95% compared to 0.97% at June 30. Our securities portfolio was $2.56 billion at September 30, a decrease of $174.2 million, or 6.4% from $2.73 billion last quarter, due to the partial restructuring of the available-for-sale (AFS) securities portfolio. The restructuring included sales of $325 million of lower yielding, longer duration securities. The sales, along with maturities and principal payments, more than offset the purchases of $288 million.

Speaker #4: Our allowance for credit losses increased to $48.5 million for the linked quarter, up from $48.3 million on June 30. Our allowance for loan losses as a percentage of total loans decreased to 0.95%, compared to 0.97% at June 30.

Speaker #4: Our securities portfolio was 2.56 billion . At September 30th , a decrease of 174.2 million , or 6.4% , from 2.73 billion last quarter , due to the partial restructuring of the AFS portfolio , the restructuring included sales of 325 million of lower yielding , longer duration securities .

Speaker #4: The sales, along with maturities in principal payments, more than offset the purchases of $288 million as of September 30th. We had a net unrealized loss in the AFS securities portfolio of $15.4 million.

Lindsey Bailes: As of September 30, we had a net unrealized loss in the AFS securities portfolio of $15.4 million, a decrease of $45 million compared to $60.4 million last quarter. The improvement occurred primarily due to the restructuring of the AFS portfolio and, to a lesser extent, an improvement in the remaining AFS portfolio. There were no transfers of AFS securities during the third quarter. On September 30, the unrealized gain on the fair value hedges on municipal and mortgage-backed securities was approximately $905,000 compared to $5.2 million linked quarter. The decrease is primarily driven by the unwinding of fair value hedges associated with the restructuring of the AFS portfolio. This unrealized gain partially offset the unrealized losses in the AFS securities portfolio.

Speaker #4: The decrease of 45 million compared to 60.4 million last quarter. The improvement occurred primarily due to the restructuring of the AFS portfolio and, to a lesser extent, an improvement in the remaining AFS portfolio.

Speaker #4: There were no transfers of AFS securities during the third quarter. On September 30th, the unrealized gain on the fair value hedges on municipal and mortgage-backed securities was approximately $905,000, compared to $5.2 million in the linked quarter.

Speaker #4: The decrease is primarily driven by the unwinding of fair value hedges associated with the restructuring of the AFS portfolio. This unrealized gain partially offset the unrealized losses in the AFS securities portfolio.

Speaker #4: As of September 30th , the duration of the total securities portfolio was 8.7 years , compared with 8.4 years at June 30th and the duration of the AFS portfolio was six and a half years , compared to 6.2 years at June 30th .

Lindsey Bailes: As of September 30, the duration of the total securities portfolio was 8.7 years compared with 8.4 years at June 30, and the duration of the available-for-sale (AFS) securities portfolio was 6.5 years compared to 6.2 years at June 30. At quarter end, our mix of loans and securities was 65% and 35%, respectively, compared to 63% and 37%, respectively, last quarter. Deposits increased $329.6 million, or 5% on a linked quarter basis, due to an increase in broker deposits of $288.6 million and a $137.1 million increase in commercial and retail deposits, partially offset by a decrease in public fund deposits of $96.1 million. On August 14, we issued $150 million of 7% subordinated notes.

Speaker #4: At quarter end , our mix of loans and securities was 65% and 34% , respectively , compared to 63% and 37% , respectively .

Speaker #4: Last quarter, deposits increased by $329.6 million, or 5%, on a linked quarter basis due to an increase in broker deposits of $288.6 million and a $137.1 million increase in commercial and retail deposits, partially offset by a decrease in public fund deposits of $96.1 million.

Speaker #4: On August 14th , we issued $150 million of 7% subordinated notes . Our 3.875% subordinated notes issued in 2020 with an outstanding amount of $92.1 million , will begin to adjust quarterly at a floating rate equal to the then current three month term .

Lindsey Bailes: Our 3.875% subordinated notes issued in 2020, with an outstanding amount of $92.1 million, will begin to adjust quarterly at a floating rate equal to the then current three-month term SOFR plus 366 basis points in mid-November of 2025. Our capital ratios remain strong, with all capital ratios well above the threshold for well-capitalized. Liquidity resources remain solid, with $2.87 billion in liquidity lines available as of September 30. We repurchased 26,692 shares of our common stock at an average price of $30.24 during the third quarter. On October 16, 2025, our board approved the additional 1 million shares authorization under the current repurchase plan, bringing the shares available for repurchase to approximately 1.1 million. There have been no purchases of our common stock since September 30. Our tax equivalent net interest margin was 2.94%, a decrease of one basis point on a linked quarter basis, down from 2.95%.

Speaker #4: SOFR plus 366 basis points in mid-November of 2025. Our capital ratios remained strong, with all capital ratios well above the threshold for well-capitalized liquidity.

Speaker #4: Resources remain solid, with $2.87 billion in liquidity lines available as of September 30th. We repurchased 26,692 shares of our common stock at an average price of $30.24.

Speaker #4: During the third quarter . On October 16th , 2025 , our board approved the additional 1 million shares authorization under the current repurchase plan , bringing the shares available for repurchase to approximately 1.1 million .

Speaker #4: There have been no purchases of our common stock since September 30th . Our tax equivalent net interest margin was 2.94% , a decrease of one basis point on a linked quarter basis , down from 2.95 .

Speaker #4: And our tax equivalent net interest spread for the same period was 2.26% . Also , a decrease of one basis point from 227 for the three months ending September 30th , we had an increase in net interest income of 1.45 million , or 2.7% , compared to the linked quarter .

Lindsey Bailes: Our tax equivalent net interest spread for the same period was 2.26%, also a decrease of one basis point from 2.27%. For the three months ending September 30, we had an increase in net interest income of $1.45 million, or 2.7% compared to the linked quarter. Non-interest income, excluding the net loss on the sales of available-for-sale (AFS) securities, increased $260,000, or 2.1% for the linked quarter, primarily due to an increase in trust fees. Non-interest expense was $37.5 million for the third quarter, a decrease of $1.7 million, or 4.4% on a linked quarter basis, primarily driven by a $1.2 million write-off on the demolition of an existing branch recorded last quarter and a decrease in software and data processing expense. Our fully taxable equivalent efficiency ratio decreased to 52.99% as of September 30 from 53.70% as of June 30, primarily due to an increase in total revenue.

Speaker #4: Noninterest income , excluding the net loss on the sales of AFS securities , increased $260,000 , or 2.1% , for the linked quarter , primarily due to an increase in trust fees , non-interest expense was 37.5 million for the third quarter , a decrease of 1.7 million , or 4.4% , on a linked quarter basis , primarily driven by $1.2 million write off on the definition of an existing branch recorded last quarter and a decrease in software and data processing expense .

Speaker #4: Our fully taxable equivalent efficiency ratio decreased to 52.99% as of September 30th, from 53.7% as of June 30th, primarily due to an increase in total revenue at this time. We expect non-interest expense to be in the $38 million range for the fourth quarter.

Lindsey Bailes: At this time, we expect non-interest expense to be in the $38 million range for the fourth quarter. We recorded income tax expense of $189,000 compared to $4.7 million in the prior quarter, a decrease of $4.5 million driven by the loss on sales on available-for-sale (AFS) securities. Our effective tax rate was 3.7% for the third quarter, a decrease compared to 17.8% last quarter. We are currently estimating an annual effective tax rate of 16.6% for 2025. Thank you for joining us today. This concludes our comments, and we will open the line for your questions.

Speaker #4: We recorded income tax expense of $189,000, compared to $4.7 million in the prior quarter, a decrease of $4.5 million, driven by the loss on sales of AFS securities.

Speaker #4: Our effective tax rate was 3.7% for the third quarter, a decrease compared to 17.8% last quarter. We are currently estimating an annual effective tax rate of 16.6% for 2025.

Speaker #4: Thank you for joining us today. This concludes our comments, and we will open the line for your questions.

Speaker #1: At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Michael Rose with Raymond James. Your line is open.

Speaker #1: We will pause for just a moment to compile the Q&A roster. Your first question comes from Michael Rose with Raymond James. Your line is open.

Speaker #3: Hey, good morning, everyone. Thanks for taking my questions.

Michael Rose: Hey, good morning, everyone. Thanks for taking my questions. Sorry if I missed this, but I wanted to go back to the restructuring. I know there's obviously going to be some moving parts here, just given that the loan growth happened kind of on the last day of the quarter, half of it, roughly. You did the restructuring. Just wanted to get a kind of a level set of, you know, if I normalize all that, what's a good kind of starting, you know, margin that we should be contemplating for the fourth quarter, just given, again, the late quarter growth, the benefits of the securities restructuring as we go forward? Just looking for a little color there. What your rate expectations are. Thanks.

Speaker #5: Sorry if I missed this , but wanted to go back to the to the restructuring . I know there's there's there's obviously going to be some some moving parts here .

Speaker #5: Just given that the loan growth happened , you know , kind of on the last day of the quarter , you know , half of it roughly , you did the restructuring .

Speaker #5: Just wanted to get a kind of a level set of if I normalize all that , what's a good kind of starting ? You know , margin that we should be contemplating for the fourth quarter just given again , the late quarter growth , the benefits of the securities restructuring as we go forward , just looking for a little color there .

Speaker #5: And then what your rate expectations are. Thanks.

Speaker #3: You know , the Nim in the fourth quarter I expect to be up slightly . You know , we have we have the sub costs in the in the third quarter that will have the full impact in the in the fourth quarter .

Lee Gibson: The NIM in the fourth quarter, I expect to be up slightly. We have the sub-debt costs in the third quarter that will have the full impact in the fourth quarter. If loans don't grow at all in the fourth quarter, which we're not anticipating, the average loans will increase $125 million during the quarter. We'll have the full impact of the $325 million of securities sales restructuring that will take effect, along with repricing of over $600 million of CDs that we anticipate will have an average savings of around 34 basis points. The only headwind to the NIM in the fourth quarter is, as I mentioned, the full impact of the 7%. We also have the repricing of the $92 million that Julie mentioned, which today would be a rate of $7.52 compared to the current rate of $3.875. Overall, I expect the NIM to be up slightly.

Speaker #3: But with , you know , if loans don't grow at all in the fourth quarter , which we're not anticipating , the average loans will increase $125 million during the quarter .

Speaker #3: And then we'll have the full impact of the $325 million of security sales , restructuring that will take effect , along with repricing of over $600 million of CDs that we anticipate , you will have an average savings of around 34 basis points on , you know , the only headwind to the Nim in the fourth quarter is I mentioned the the full impact of the the 7% , and then we also have the repricing of the 92 million that Julie mentioned , which , you know , today would be a rate of 7.52 compared to the current rate of of 3.875 .

Speaker #3: So overall , I expect them to be up slightly . I expect net interest income to improve nicely . And , you know , I think I think , you know , we're set up for a lot of positive things in the future when it comes to net income .

Lee Gibson: I expect net interest income to improve nicely. I think we're set up for a lot of positive things in the future when it comes to net interest income and the NIM. I don't know if that gives you a flavor for what we're looking at.

Speaker #3: And the Nim. I don't know if that gives you a flavor for what we're looking at.

Speaker #5: Yeah. It's helpful. There's just some, obviously, a good amount of moving parts here. So, I appreciate it.

Michael Rose: Yeah, it's helpful. There's just a good amount of moving parts here. I appreciate the.

Speaker #3: There's a .

Speaker #5: Bunch appreciate the caller . Yep . Maybe just just just moving on . You know we've seen some deal activity here in Texas over the past couple of months .

Lee Gibson: There's a bunch.

Michael Rose: Appreciate the color. Maybe just moving on. You know, we've seen some deal activity here in Texas over the past couple of months. I know you guys have kind of previously stated, you know, wanting to potentially, you know, do a deal yourselves. Just wanted to see if there's any kind of update there in terms of what you may be looking for. Then maybe separately, if there's some opportunities for hiring in light of those recent deals or maybe a market share gain from clients. Thanks.

Speaker #5: I know you guys have have kind of previously stated , you know wanting to potentially you know , do a deal yourselves . Just wanted to see , you know , if there's any kind of update there in terms of what you may be looking for .

Speaker #5: And then maybe separately, if there are some opportunities for hiring in light of those, you know, recent deals or maybe market share gain from clients.

Speaker #5: Thanks .

Speaker #3: You know what we're looking at really hasn't changed . You know , there are a few institutions that we have , some interest in that potentially might be for sale in terms of hires .

Lee Gibson: What we're looking at really hadn't changed. There are a few institutions that we have some interest in that potentially might be for sale. In terms of hires, that is something we're looking at, and we've made a few hires. With some of the disruption that's occurring, especially with some of the larger out-of-state banks buying some of the less than $10 billion banks here in Texas, there's definitely been some disruption, and we hope to jump on that opportunity and make some additional hires there.

Speaker #3: That is that is something we're looking at . And we've made a few hires , but yeah , with some of the disruption that's occurring , especially with some of the larger out-of-state banks buying , you know , some of the , the , the less than $10 billion banks here in Texas , you know , there's there's definitely been some disruption .

Speaker #3: And , you know , we hope to to to , you know , jump on that that opportunity and make some additional hires there .

Speaker #5: Okay . Great . I'll step back . Lee . Congratulations on on the announcement and look forward to seeing you all soon . Thanks .

Michael Rose: Okay, great. I'll step back. Lee, congratulations on the announcement.

Lee Gibson: Well, thanks.

Michael Rose: I look forward to seeing you all soon. Thanks.

Speaker #5: .

Speaker #3: All right. Thank you.

Lee Gibson: All right. Thank you.

Speaker #1: Your next question comes from the line of Woody Lee with CCB. Your line is open.

Operator: Your next question comes from the line of Julie Shamburger with KBW. Your line is open.

Speaker #5: Hey .

Julie Shamburger: Hey, thanks for taking my questions. Wanted to start on loan growth. Obviously, a really strong quarter, and it sounds like a lot of that growth actually came on the final day of the quarter. I was just curious on the pipeline entering the fourth quarter, how it's looking, and if there was any pull-through of the pipeline in this quarter.

Speaker #6: Thanks for taking my questions . Wanted to start on loan growth . Obviously a really strong quarter . And it sounds like , you know , a lot of that growth actually came on the final day of the quarter .

Speaker #6: So, I was just curious about how the pipeline is looking entering the fourth quarter, and if there was any pull-through of the pipeline in this quarter.

Speaker #3: Yeah, you know, pipelines are strong. It did take a dip; that's somewhat to be expected given the strong production quarters we've had.

Keith Donahoe: Yeah. You know, the pipeline's strong. It did take a dip, and that's somewhat to be expected given the strong production quarters we've had. As we talk about internally, we have folks that are running hard to catch something. When they catch it, they run hard to get it closed. During that period of time, they get in what we sometimes refer to as bunker mentality. They're closing the transaction and not looking for the next one. I was really excited to see that after we took a dip in the pipeline, it bounced back up to $1.8 billion, which I feel is a really strong number. If you go back 12 months ago, I think we were running about $1 billion typically on a pipeline. We're strong. We feel good about, you know, pull-through.

Speaker #3: You know, as we talk about internally, we have folks that are running hard to catch something when they catch it.

Speaker #3: They run hard to get it closed. During that period of time, they get in what we sometimes refer to as a bunker mentality.

Speaker #3: So they're closing the transaction and not looking for the next one . But I was really excited to see that after we took a dip in the pipeline , that it bounced back up to 1.8 billion , which I feel is a really strong number .

Speaker #3: If you go back 12 months ago , I think we were running about $1 billion , typically on a on a pipeline . So look strong .

Speaker #3: We feel good about , you know , pull . Generally speaking , we're still seeing 25 to 30% of the pipeline moving through to a success rate .

Keith Donahoe: Generally speaking, we're still seeing 25% to 30% of the pipeline moving through to a success rate. Sometimes that gets a little bit skewed by time because some of these have taken a while. They've been in the pipeline a while. We feel good. The one thing that's always out there is, especially as you get towards the year-end, there may be some unknown payoffs that occur, but we still feel pretty good about our guidance number today.

Speaker #3: You know, sometimes that gets a little bit skewed by time because some of these have taken a while. They've been in the pipeline a while.

Speaker #3: So but we feel good . The one thing that's always out there is , is especially as you get towards the year end , there may be some unknown payoffs that that occur , but we still feel pretty good about our our guidance number today .

Speaker #6: Got it. That's helpful. And then, based on the current pipeline, are there segments that you're seeing a particular strength in? And just what's the overall pricing competition dynamic like?

Julie Shamburger: Got it. That's helpful. Based on the current pipeline, are there segments that you're seeing a particular strength in? What's the overall pricing competition dynamic like? I feel like most banks this quarter are just talking about how intense competition is. Are you seeing that from y'all's perspective?

Speaker #6: I feel like most banks this quarter have just talked about how intense competition is. So, are you seeing that from y'all's perspective?

Speaker #3: Yeah , there's a lot of competition out there , both from the CRE standpoint and CNI . So we're we're not immune to it .

Keith Donahoe: Yeah, there's a lot of competition out there, both from the CRE standpoint and C&I. We're not immune to it. We are being disciplined in our pricing approach. Generally speaking, since the second quarter, pricing hasn't changed a lot. We're still looking at, you know, if it's a fully funded transaction, those are, and it's a high quality, you know, you're getting down to a, you know, 2% spread over SOFR. We have seen some banks willing to go below 2%. We slightly dip below 2% on one transaction, but we are also selling a swap as part of the deal that helped get us back to what we would consider kind of the floor for us. On the construction side, we're still seeing construction debt that is going or moving at somewhere between, you know, as low as $250, but generally speaking, somewhere around $265 to $275.

Speaker #3: We are being disciplined in our pricing approach . And generally speaking , since the second quarter , pricing hasn't changed a lot . We're still looking at , you know , if it's a fully funded transaction , those are and it's a high quality , you know , you're getting down to a , you know , 2% spread over Sofr .

Speaker #3: We have seen some some banks willing to go below two . We we slightly dip below two on one transaction . But we are also selling a swap as part of the deal that that helped get us back to what we would consider kind of the floor for us on the construction side , we're still seeing construction debt that is going moving at , winning at somewhere between , you know , as low as 250 .

Speaker #3: But generally speaking, somewhere around 265 to 275.

Speaker #6: Got it . And then lastly , as it pertains to the securities restructure , you know , part of those proceeds going to loan growth , to the extent that loan growth remains strong in the future , should we expect additional restructures to sort of help fund that growth ?

Julie Shamburger: Got it. Lastly, as it pertains to the securities restructuring, you know, part of those proceeds going to loan growth. To the extent that loan growth remains strong in the future, should we expect additional restructurings to sort of help fund that growth?

Speaker #3: Well , two things . You know , I spoke to the fact that this restructuring provided us even more flexibility , as we have a lot of securities now that are at , you know , gains and , you know , so we're in a position now that we can fund loan growth , increase spreads and actually sell , you know , sell securities near our book or , you know , above it , if the market allows and conditions are such that it makes sense to do some additional restructuring , the available sales portfolio , we're certainly going to take a look at it as Julie mentioned , you know , the market's improved quite a bit .

Lee Gibson: Two things. I spoke to the fact that this restructuring provided us even more flexibility, as we have a lot of securities now that are at, you know, gains. You know, we're in a position now that we can fund loan growth, increase spreads, and actually sell, you know, sell securities near our book or, you know, above it. If the market allows and conditions are such that it makes sense to do some additional restructuring in the available-for-sale (AFS) securities portfolio, we're certainly going to take a look at it. As Julie Shamburger mentioned, the market's improved quite a bit. Spreads have also tightened there quite a bit, especially in the muni market. We're going to continue to look at that carefully.

Speaker #3: Spreads have also tightened there quite a bit , especially in the in the muni market . So you know we're going to continue to look at that carefully .

Speaker #3: But you know, I would say most of the heavy lifting in the AFS portfolio has been done. However, there is still some that we will take a look at.

Lee Gibson: I would say most of the heavy lifting in the AFS portfolio has been done, but there is still some that we will take a look at and make decisions on as appropriate.

Speaker #3: And make decisions as appropriate.

Speaker #6: Got it . Well , thanks for taking my questions . And congrats on the upcoming retirement . And Keith , congrats on stepping into the role .

Julie Shamburger: Got it. Thanks for taking my questions. Lee, congrats on the upcoming retirement. Keith, congrats on stepping into the role.

Speaker #3: Thank you. Thank you.

Keith Donahoe: Thank you.

Speaker #5: Appreciate it .

Lee Gibson: Thank you. Appreciate it.

Speaker #1: Your next question comes from the line of Jordan Gant with Stephens. Please go ahead.

Operator: Your next question comes from the line of Jordan Gent with Stephens. Please go ahead.

Speaker #7: Hey , thanks for taking my question . I just had a question on the buyback . So you recently increased the authorization and just kind of what should we expect with , you know , buyback activity going forward ?

Jordan Gent: Hey, thanks for taking my question. I just had a question on the buyback. You recently increased the authorization. What should we expect with, you know, buyback activity going forward?

Speaker #4: Yes . So we did increase , as you mentioned , the last time we increased was back in July of 23 . And since that date , we purchased 868,000 shares , give or take a few .

[Analyst]: Yes. We did increase, as you mentioned. The last time we increased was back in July of 2023. Since that date, we've purchased 868,000 shares, give or take a few. I think we're going to approach it the same way that we historically have. When we see the price dip and it's opportunistic, we will be out there actively purchasing shares. We've historically purchased open market shares and then done several 10(b)(5)(1) plans at the quarter ends. We did not do that this last quarter. That's pretty much our strategy. We just try to, we want to have it in place when it's opportunistic to purchase. No strategy just to be terribly active at any one point, but just to watch the market.

Speaker #4: And so I think we're going to approach it the same way that we historically have , you know , when we see the price dip and it's opportunistic , you know , we will we'll be out there actively purchasing shares .

Speaker #4: You know , we've historically purchased open market shares . And then done several ten five one plans , you know , at the quarter end .

Speaker #4: So we did not do that this last quarter . But that's pretty much our strategy . We just try to we want to have it in place when it's opportunistic to purchase .

Speaker #4: So, no strategy—just to be terribly active at any one point, but just to watch the market.

Speaker #7: Okay . Thanks . And then just kind of going into the fee income . So it looks like trust fees have just had a steady climb over the last year .

Jordan Gent: Okay. Thanks. Just kind of going into the fee income, it looks like trust fees have just had a steady climb over the last year. Kind of where do you guys see that going over, you know, maybe the next year or so and as a portion of the income?

Speaker #7: Kind of . Where do you guys see that going over . You know , maybe the next year or so . And as a as a portion of the income .

Speaker #3: We, you know, we have a really good team in place that we've put in place over the last two years. And they're having a lot of impact, especially here in East Texas.

Lee Gibson: We have a really good team in place that we've put in place over the last two years. They're having a lot of impact, especially here in East Texas. We anticipate seeing double-digit revenue growth in that area next year as well. We were expecting continued success. They're extremely busy, and they're taking on new clients all the time. That's an area of non-interest income that we're really encouraged about and excited about.

Speaker #3: And so we anticipate seeing double digit revenue growth in that area next year as well . So , you know , we have we're expecting , you know , continued success there .

Speaker #3: Extremely busy. And you know they're taking on new clients all the time, so you know that's an area of noninterest income that we're really encouraged about.

Speaker #3: And excited about . And to add to that , Lee , you know , we are one of the missing things for us right now is , is to really go into the metro markets with the with the wealth management .

Keith Donahoe: Yeah. To add to that, Lee, one of the missing things for us right now is to really go into the metro markets with the wealth management. We are exploring that, and we think we're going to make some good headway in 2026 on that. We may not attack each metro market with the same vigor, but we've got a pretty good footprint and footwork that I think could be a good support and starting point for wealth management in the metro market. I'm really excited about that in the future.

Speaker #3: So we are exploring that and we think we're going to make some good headway in 2026 on that. And we may not attack each metro market with the same vigor.

Speaker #3: But we've got a pretty good footprint in Fort Worth that I think could be a good support and starting point for wealth management in the metro market.

Speaker #3: So, I'm really excited about that in the future.

Speaker #7: Perfect. And then maybe just one more question. How many rate cuts are you guys assuming through year-end and maybe even into '26?

Jordan Gent: Perfect. Maybe just one more question. How many rate cuts are you guys assuming through year-end and maybe even into 2026?

Speaker #3: I'm you know , I'm I'm pretty certain that next week we'll we'll see movement potential that there's , you know , another another move the last the last fed meeting this year , next year .

Lee Gibson: I'm pretty certain that next week we'll see movement. There's potential that there's another move at the last Fed meeting this year. Next year, I'm anticipating probably at least two cuts. It really just depends on what the Fed determines. Of course, we're going to have new leadership mid-next year. My guess is that the new leadership is going to be more on the side of cutting additionally, based on what the executive branch is saying. It could be more than two cuts next year. A lot of it's probably going to depend on inflation and on employment. The inflation numbers came in nice this morning, lower than expectation, but it's still above their 2% target. Whether they change that with new Fed leadership, that's up in the air.

Speaker #3: You know , I'm anticipating , you know , probably at least two cuts . It really just depends . You know , the you know what what the fed determines .

Speaker #3: And of course we're going to have new leadership mid mid next year . And my guess is that the new leadership is going to be more on the side of cutting .

Speaker #3: Additionally , based on what the executive branch is saying . So you know , it could be more than two cups next year .

Speaker #3: A lot of it's probably going to depend on inflation and on the and the employment and the inflation numbers came in , came in nice this morning .

Speaker #3: You know, it's lower than expectations, but it's still above their 2% target. Now, whether they change that with new Fed leadership...

Speaker #3: You know, that's up in the air.

Speaker #7: Okay . Thank you .

Jordan Gent: Okay, thank you.

Speaker #1: Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Anja Pelka with HFD Group.

Operator: Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Anya Pelshaw with Hovde. Please go ahead.

Speaker #1: Please go ahead .

Speaker #8: Hey, I'm asking questions on behalf of Brett. Today, I was hoping you could talk about the growth in DDA. Was it somewhat seasonal, or do you think it was sticky?

[Analyst]: Hey, I'm asking questions on behalf of Brett today. I was hoping you could talk about the growth in DDA, if it was somewhat seasonal or if you think it was sticky.

Speaker #3: So yeah , I guess the answer is it's not necessarily seasonal . What ? We were just talking internally . So through some business we have picked up some large depositors through that process .

Keith Donahoe: I guess the answer is it's not necessarily seasonal. What we were just talking internally, through some inter-file business, we have picked up some large depositors through that process. We do think that's going to moderate probably in the fourth quarter. Some of that came in through one particular customer that is ramping up sales right now and getting deposits. We do think that'll moderate some through the end of the fourth quarter.

Speaker #3: So, we do think that's going to moderate probably in the fourth quarter. Some of that came in through one particular customer.

Speaker #3: That is ramping up sales right now and getting deposits. So we do think that'll moderate some through the end of the fourth quarter.

Speaker #8: Okay . Thank you . And you've talked about the long pipeline , but I guess I was talking I was hoping you could expand on the growth so far from the new lenders .

[Analyst]: Thank you. You've talked about the loan pipeline. I was hoping you could expand on the growth so far from the new lenders.

Speaker #3: So out of the Houston market, is that what you're referring to?

Keith Donahoe: Out of the Houston market, is that what you're referring to?

Speaker #6: Yeah .

Speaker #8: Yeah .

[Analyst]: Yeah.

Keith Donahoe: Yeah. We are seeing good positive traction. One thing that just to keep clear, we've had four new hires in that market that are specific kind of to C&I business. One of them came in, I think, December 30, 2023. We had another one add in the first quarter, right towards the end of the first quarter. We've had one added at the end of the second quarter. We had another one added right in the end of July, early August. We haven't been able to see truly a full year of production yet, but it's been positive. They are gathering deposits as well as loan growth right now. The C&I uptick, one thing we've talked about is really pushing our mix on C&I. Right now, at the beginning of the year, we were about 15% of our book is C&I. We have seen a slight uptick.

Speaker #3: So we are we're seeing good positive traction . One thing that just to keep clear , we've had four new hires in that market that are specific kind of to CNI business .

Speaker #3: And one of them came in, I think, December 30th of this past year. And we had another one add in the first quarter, right towards the end of the first quarter.

Speaker #3: And then we've had one added at the end of the second quarter. And then we had another one added right in in July, early August.

Speaker #3: So, we haven't been able to see a truly full year of production yet, but it's been positive. They are gathering deposits as well as loan growth right now.

Speaker #3: The CNI uptick—one thing we've talked about is really pushing our mix on CNI right now. We are at the beginning of the year.

Speaker #3: We were about 15% of our book is CNI . We have seen a slight uptick . We're about 16% today . And that some of that growth is actually coming out of our existing East Texas market .

Keith Donahoe: We're about 16% today. Some of that growth is actually coming out of our existing East Texas market. We're excited about what's happening in Houston, but you know we've long been doing C&I in the East Texas and Southeast Texas markets, and we're seeing some good traction with that.

Speaker #3: So, we’re excited about what’s happening in Houston. But, you know, we’ve long been doing CNI in the East Texas and Southeast Texas markets.

Speaker #3: And we're seeing some good traction with that . Overall , in Houston , we've seen we've seen really positive loan growth . You know , probably in the 15% range this year .

Lee Gibson: Overall, in Houston, we've seen really positive loan growth, probably in the 15% range this year.

Speaker #3: And so that's coming on the back of CRE lending.

Keith Donahoe: Some of that's coming on the back of commercial real estate lending.

Speaker #1: This completes our question-and-answer session. I will now turn the call back to Lee Gibson, CEO, for closing remarks.

Operator: This completes our question and answer session. I will now turn the call back to Lee Gibson, CEO, for closing remarks.

Speaker #3: Thank you. As alluded to earlier, this is going to be my final earnings call, as I'm going to be retiring at the end of the year.

Lee Gibson: Thank you. As alluded to earlier, this is going to be my final earnings call as I'm going to be retiring at the end of the year. I wanted to take this opportunity to thank the analysts that cover Southside for your thoughtful questions, keen insight, and your overall excellent coverage. I also want to thank our shareholders for your continued support and encouragement. I want to let you know how excited I am about Southside's future as Keith Donahoe takes the helm, assisted by CFO Julie Shamburger and an extremely capable senior management team. Thank you, everyone, for joining us today. We appreciate your interest in Southside Bancshares Inc. along with the opportunity to answer your questions. We look forward to reporting fourth quarter results to you during our next earnings call in January. This concludes the call. Thank you.

Speaker #3: So I wanted to take this opportunity to thank the analysts . That covers Southside for your thoughtful questions . Keen insight and your overall excellent coverage .

Speaker #3: I also want to thank our shareholders for your continued support and encouragement, and I want to let you know how excited I am about Southside's future as Keith Donahoe takes the helm, assisted by CFO Julie Shamburger and an extremely capable senior management team.

Speaker #3: Thank you, everyone, for joining us today. We appreciate your interest in Southside Bancshares, along with the opportunity to answer your questions.

Speaker #3: We look forward to reporting fourth-quarter results to you during our next earnings call in January. This concludes the call. Thank you.

Operator: Ladies and gentlemen, thank you all for joining. You may now disconnect.