Southside Bancshares, Inc. (SBSI) Q3 2026 earnings review
Southside's lending margin rebounds, but its deposits keep shrinking
Southside Bancshares, a Texas community bank, widened its lending margin while loan growth stalled and deposits shrank. Profit per share reached $0.93 as higher yields on mortgage bonds lifted its tax-equivalent lending margin to 3.02%, chief executive Keith Donahoe said. However, construction loan paydowns held net loan additions to $9 million, well below what the full-year plan pointed to.
| Pre-tax profit, excluding bond losses | $34.3M +16% from a year ago by our math |
|---|---|
| Tax-equivalent lending margin | 3.02% +0.12 percentage points from last quarter |
| Total loans | $4.96B +0.2% from last quarter (+4.1% from a year ago) |
| Total deposits | $6.01B -2.5% from last quarter (-13.6% from a year ago) |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because the lending margin rebound was offset by weaker funding and stagnant loan balances. Higher bond yields and lower deposit rates eased immediate margin pressure, and wealth management fees beat their budget pace. The bad news: public fund deposit outflows pushed short-term wholesale borrowings up to $1.70 billion, and by our math the bank needs $100 million of fourth-quarter loan additions to meet its annual target.
The question now is whether Southside can grow its loan book and core deposits without leaning harder on wholesale debt. One view is that rising commercial lending and construction commitments will overtake payoffs; the other is that payoffs and deposit outflows will keep capping growth. Fourth-quarter loan payoffs and deposit balances will settle it.
🐂 Bull Case
Higher Bond Yields Lifted the Lending Margin
Net interest margin — the gap between what a bank earns on loans and bonds and what it pays on deposits and debt — had been a central worry after falling in the second quarter. In the third quarter, Southside's tax-equivalent net interest margin rebounded by 0.12 percentage points from last quarter to 3.02%, pushing net interest income up 5.2% to $60.3 million.
The Texas bank attributed the gain to "an increase in the average yield of our interest earning assets" and "an additional day of net interest income in the third quarter". Yields on mortgage-backed securities rose 0.23 percentage points to 5.23%, loan yields climbed 0.07 percentage points to 5.93%, and the cost of total deposits fell 0.05 percentage points to 1.89%. One quarter eases the margin concern, but does not settle it because short-term debt is still growing.
What to watch: fourth-quarter average rate on interest-bearing liabilities. A rise above 2.91% would show that new wholesale borrowings are eating into the bond-yield gains.
Wealth Fees Grow Ahead of the Annual Plan
Southside has been expanding its wealth management and trust division to bring in steady fee income that does not depend on loan rates. Chief executive Keith Donahoe noted that trust fees kept climbing, driven by a "10% year-to-date growth in assets under management" and higher brokerage activity.
Trust fees rose 28.0% from a year ago and 10.8% from last quarter to $2.66 million, while brokerage services income grew 31.4% from a year ago to $1.54 million. That brings nine-month trust fees to $7.27 million, leaving just $1.73 million in the fourth quarter to reach the $9.0 million full-year budget by our math.
What to watch: fourth-quarter trust fees and assets under management when the bank reports full-year results. Holding the $2.66 million quarterly run-rate would put full-year trust fees above $9.9 million.
Positives this quarter didn't test
Earlier this year, management paused share buybacks to preserve capital for potential bank acquisitions. The third-quarter release included no acquisition announcements, but revealed a shift back toward capital return after the quarter closed.
- Acquisition plans: no deal was announced in the release, though Common Equity Tier 1 capital — a core measure of a bank's cushion against losses — rose 0.22 percentage points to 13.12%; commentary on the deal pipeline awaits the conference call.
- Share repurchases: Southside bought zero shares in the third quarter, but purchased 36,474 shares at an average price of $30.00 between October 1 and October 26, leaving about 0.8 million shares authorized.
What to watch: fourth-quarter repurchase volume in the full-year report. A larger buyback would indicate that near-term acquisition targets have moved further out.
🐻 Bear Case
Business Lending Offset Construction Paydowns, but Total Loans Stalled
Southside has been growing its commercial and industrial lending to diversify away from commercial real estate, while targeting mid-single-digit total loan growth for 2026. Supporters point to three straight quarters of rising loan originations, while skeptics argue that early loan payoffs keep wiping out that new business.
- Total loans: $4.96 billion, up just $9.1 million (0.2%) from last quarter and 4.1% from a year ago
- Commercial loans: up $42.6 million (9.1%) from last quarter to $510.1 million
- Construction loans: down $57.1 million (9.5%) from last quarter to $543.0 million
- Municipal and residential loans: municipal rose $10.1 million and 1-4 family residential rose $8.8 million
The numbers show payoffs are still winning the tug-of-war, because construction paydowns nearly erased the gains in business lending. By our math, Southside must add $100.2 million of net loans in the fourth quarter to reach the 5% middle of its full-year target, after adding only $12.5 million across the last two quarters combined.
What to watch: gross loan production and payoff dollar volumes on the conference call and in the quarterly filing. If payoffs stay near second-quarter levels, the bank will miss its full-year loan growth target.
Deposit Outflows Pushed Short-Term Borrowings Higher
A bank earns its widest margins when it funds loans with low-cost customer deposits rather than wholesale debt. Over the past year, Southside's total deposits fell 13.6% ($947.8 million) to $6.01 billion, including a 2.5% ($155.6 million) drop in the third quarter.
Third-quarter deposits fell because public fund deposits dropped $200.2 million and commercial and retail deposits slipped $4.8 million, only partly offset by $49.4 million in new brokered deposits. To plug the gap and fund $49.3 million of bond purchases, management raised Federal Home Loan Bank and other borrowings by $279.7 million from last quarter to $1.70 billion, up from $200.7 million a year ago. That reduced available backup liquidity from $1.99 billion to $1.86 billion.
What to watch: commercial and retail deposit balances in the fourth quarter. Continued outflows would force Southside to rely even more on 4.04% Federal Home Loan Bank advances.
Problem Loans Tick Down, Though Past-Due Balances Rose
"Asset quality metrics remain solid with declining classified loans and a nonperforming assets to total assets ratio of 0.18%," Donahoe said. Classified loans — loans showing early signs of financial weakness — fell 5.7% from last quarter to $245.2 million.
Yet several credit measures moved the other way. Classified loans remain up 38.6% from $176.9 million at the end of 2025. Nonperforming assets — overdue or non-paying loans — rose 61.6% from last quarter to $15.8 million, mostly from a $5.2 million commercial real estate loan past due over 90 days "that subsequently paid off in full on October 1, 2026". Even excluding that loan, nonaccrual loans crept up $0.7 million to $10.3 million, and the bank booked a $0.9 million loan loss provision against a small reversal last quarter.
What to watch: commercial real estate substandard loan balances in the quarterly filing. A drop below $200 million would show that stressed apartment borrowers are refinancing out.
👓 Other Themes
Securities Restructuring Losses Lapped From Last Year
Reported net income rose 469.4% from a year ago to $28.0 million, and diluted earnings per share rose 481.3% to $0.93. That jump happened because third-quarter 2025 included a $24.4 million pre-tax loss from selling lower-yielding available-for-sale bonds. Southside recorded no bond sale gains or losses this quarter; excluding last year's bond loss, pre-tax profit grew 16.2% from a year ago by our math.
💲 Other KPIs
The tax-equivalent efficiency ratio — overhead costs as a share of revenue, where a lower figure means higher productivity — improved by 1.41 percentage points from last quarter and 1.44 percentage points from a year ago. Overhead expenses rose just 0.9% from last quarter to $39.0 million, well below the $40.5 million quarterly budget.
Tangible book value per share — the bank's net worth per share excluding goodwill and intangibles — fell 5.9% from $22.84 last quarter, though it stays 2.2% above $21.04 a year ago. Total shareholders' equity dropped $39.6 million in the quarter to $842.9 million, pulling the tangible equity to tangible assets ratio down 0.55 percentage points to 7.40%.
The effective tax rate rose from 17.6% last quarter and 3.7% a year ago, when bond sale losses depressed pre-tax profit. The sequential increase reflected tax-exempt income making up a smaller share of higher pre-tax profits and the absence of a second-quarter equity-award tax benefit, bringing the nine-month tax rate to 17.9%.
❓ Key Questions
Why did shareholders' equity fall $40 million despite strong profit?
Southside earned $28.0 million in net income and paid $11.0 million in dividends, yet period-end shareholders' equity dropped $39.6 million to $842.9 million. The release does not disclose accumulated other comprehensive loss movements on the bond portfolio or derivatives.
What were gross loan originations and payoffs in the quarter?
Period-end loans grew just $9.1 million because construction loans fell $57.1 million. Investors need the third-quarter production and payoff totals, along with the current loan pipeline, to judge whether the full-year loan growth plan is still reachable.
How much of the margin jump came from bond prepayment speeds?
Yields on mortgage-backed securities jumped 0.23 percentage points to 5.23% while average balances barely changed. Management should clarify whether faster principal prepayments on discounted bonds drove that yield jump, or if it represents a sustainable run-rate.
What is the plan for the $941 million of maturing certificates of deposit?
Public fund deposits fell $200.2 million in the quarter and short-term borrowings climbed to $1.70 billion. With $581 million of certificates of deposit repricing in the third quarter and $360 million more in the fourth, deposit retention rates matter for funding costs.