Southside Bancshares Navigates Higher Rates, Posts Q4 Profit Rebound Amid Strategic Portfolio Shift
TYLER, Texas – Southside Bancshares (NYSE: SBSI) signaled a return to firmer footing in its latest quarterly results, with executives pointing to a strategic overhaul of its investment portfolio and controlled expense management as key drivers behind a rebound in profitability. The Texas-based bank holding company reported net income of $21.0 million for the fourth quarter, a sharp increase from the prior quarter, though full-year 2025 earnings declined due to restructuring costs.
In a call with analysts, CEO Keith Donahoe framed the quarter as one of "prudent repositioning," highlighting a continued shift out of low-yielding municipal securities and into higher-yielding mortgage-backed securities. The move, which generated a one-time loss, is expected to bolster future net interest income. "We're playing the long game with our balance sheet," Donahoe stated, estimating a payback period of under 3.5 years for similar third-quarter actions.
The bank's net interest margin, a critical measure of lending profitability, edged up 4 basis points to 2.98%. Management attributed the modest gain primarily to declining deposit costs and anticipates further, though gradual, expansion throughout 2026, particularly after the planned redemption of $93 million in higher-cost subordinated debt next February.
Loan growth was muted at 1.1% quarter-over-quarter, totaling $4.18 billion. Donahoe noted a dip in new loan production but expressed confidence in a "rebounded" pipeline now exceeding $2 billion. Credit quality remained robust, with non-performing assets representing just 0.45% of total assets, though executives are monitoring a previously disclosed $27.5 million multifamily loan for resolution.
A notable shift occurred on the deposit side, where total deposits declined 1.4%. CFO Julie Shamburger explained this was due to a strategic reduction in brokered deposits, offset by growth in core retail and public funds. This reflects an industry-wide trend as banks seek to stabilize their funding bases amid elevated interest rates.
Looking ahead, Southside is budgeting for a 7% increase in non-interest expense for 2026, earmarking funds for two major technology initiatives: a core system migration and a new enterprise data platform. "These are foundational investments for the next decade," Donahoe emphasized, even as the bank has reduced its headcount by approximately 6% since late 2023.
On mergers and acquisitions, the CEO struck a cautious tone, describing the strategy as a "puzzle." While actively seeking opportunities in key Texas metros like Dallas, Houston, and Austin, Donahoe stressed the bank is "not looking to acquire just to acquire," and would prioritize targets below $1.5 billion in assets.
Market Voices: Analyst & Investor Reactions
Michael R., Portfolio Manager at a Regional Fund: "The portfolio restructuring is a painful but necessary step. The improved mark-to-market position and shorter duration show management is proactively managing interest rate risk. The margin guidance is conservative, but that's prudent in this environment."
Lisa Chen, Banking Analyst at Horizon Advisors: "The expense guidance for 2026 is the key takeaway. A 7% increase is significant. Investors will want to see clear ROI on those tech investments through improved efficiency and revenue generation down the line, not just cost savings from branch closures."
David Forsythe, Independent Investor: "Enough with the 'strategic' buzzwords. They took a $7.3 million loss selling low-yield bonds they never should have loaded up on in the zero-rate era. Now they're hiking expenses and talking about buying other banks? This feels like rearranging deck chairs. Show me organic loan growth that isn't anemic first."
Sarah Wilkinson, Former Bank Executive & Board Member: "The focus on core deposit growth and shedding brokered money is the right move for long-term health, even if it pressures totals short-term. Their capital position is strong, giving them flexibility for buybacks or a strategic deal when the right one emerges."
Southside Bancshares, headquartered in Tyler, Texas, operates through Southside Bank, providing commercial and consumer banking services across East and North Texas.