SOUTHSIDE BANCSHARES INC (SBSI)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered stable profitability with diluted EPS of $0.71, ROAA 1.03%, and ROATCE 14.14%; net interest margin (FTE) rose 3 bps to 2.86 as funding costs eased and CDs began repricing .
• Linked-quarter loans fell 2.0% on elevated payoffs (construction, municipal), while deposits declined 1.0%; management maintained mid‑single‑digit 2025 loan growth guidance and signaled NIM has troughed in Q1, with improvement expected ahead .
• Nonperforming assets increased to 0.39% of assets (from 0.04% in Q4) due to one restructured multifamily CRE loan; borrower remains current, lease-up positive, and management expects resolution over time .
• EPS was modestly above S&P Global consensus and revenue below, highlighting expense control and margin stability amid loan payoffs; catalysts: improving NIM, pipeline strength ($1.9B, largest in ~2 years), and capital deployment (post‑quarter buybacks) .
• Subsequent to quarter end, the company repurchased 196,419 shares at $26.82; dividend of $0.36/share paid in March; liquidity remains solid at $2.29B .

What Went Well and What Went Wrong

What Went Well

• NIM inflected: tax‑equivalent NIM improved to 2.86% (+3 bps q/q) as cost of interest-bearing deposits fell to 2.83%; management expects further improvement given CD repricing and new swaps . Quote: “We feel good about the margin moving forward… most definitely, we would have reached the trough in the first quarter.”
• Pipeline and production: commercial loan production of ~$142M (+46% y/y); pipeline reached ~$1.9B (largest in 24–36 months) with 25–30% historical pull‑through; rising C&I mix (~25%) . Quote: “We are picking up some new opportunities in the C&I space, which we’re really excited about.”
• Expense discipline: noninterest expense fell $1.1M q/q; salaries/benefits down ~$578K (absence of prior incentive accruals), equity comp down >$100K; efficiency ratio (FTE) at 55.04% .

What Went Wrong

• Loans declined: total loans −$94.4M (−2.0% q/q) on outsized payoffs across construction and municipal; average loans funded carried 7.3% rates, but timing of payoffs weighed on balances .
• Noninterest income fell: down $2.1M q/q on lower swap fee income (Q4 had ~$1.4M); net loss on securities AFS and lower deposit services income also pressured the line .
• Asset quality optics: NPA rose to 0.39% of assets (from 0.04%) due to one restructured multifamily loan; classified loans increased to $67.0M (paid off $17.9M in April), and off‑balance-sheet provision rose $0.7M .

Financial Results

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO (press release): “Linked quarter, the net interest margin increased three basis points to 2.86%, net interest income increased $145,000 to $53.9 million… Our loan pipeline is solid and we continue to anticipate mid‑single‑digit loan growth for 2025” .
• CFO: “We sold $120,000,000 of mortgage‑backed securities with 7% coupons and recorded a net realized loss of $554,000… replaced with $121,000,000 of low premium 6% coupon MBS with less prepayment risk” .
• President (loans): “Currently, our loan pipeline exceeds $1,900,000,000… Historically, we’ve closed between 25–30% of our pipeline… we expect loan growth to exceed payoffs in the second quarter” .
• CEO (margin outlook): “We felt like we’ve reached a trough… CD maturities reprice lower, new swaps added… should have an overall positive impact on the margin” .

Q&A Highlights

• Margin mechanics and rate sensitivity: ~<$300M CDs maturing in next 3 months repricing down ~40–45 bps; added ~$125M swaps early Q2; overall positive for NIM; asset sensitivity mitigated by funding cost drift lower .
• Expenses: Q1 below budget; salaries/benefits −$578K; equity comp −$100K; expect ~$39M in Q2 including ~$1M demolition; remaining quarters near ~$39M .
• Credit update on restructured CRE: Austin multifamily; negotiated extension with credit enhancements; borrower current; lease‑up positive, slower than budget; monitored closely .
• Capital allocation: Repurchases resumed post‑quarter; balancing with sub debt callable in Q4 (~$92M outstanding); aim to retire ~$45–$46M without stressing capital .
• Fee outlook: Q4 swap fees (~$1.4M) were extraordinary; budgeted $600K for 2025; expect higher swap fees in Q2 vs Q1 ($98K in Q1) .

Estimates Context

Notes:

• Company‑reported Q1 2025 diluted EPS was $0.71 (non‑normalized) ; S&P Global “actual” uses standardized definitions and may differ.
• In Q1 2025, EPS modestly exceeded consensus, while revenue was below consensus; expect estimate revisions to reflect stronger margin trajectory and lower swap fee contribution.
• Values retrieved from S&P Global.*

Key Takeaways for Investors

• Margin tailwinds are building: lower CD rates, swaps added, and signs of funding cost relief support a post‑Q1 NIM recovery; near‑term catalyst for multiple expansion if sustained .
• Loan growth hinges on payoffs timing: pipeline strength (largest in ~2–3 years) and higher production should outweigh lighter expected Q2 payoffs; watch June/July closings .
• Asset quality uptick appears idiosyncratic: NPA rise tied to a single restructured multifamily loan with positive lease‑up and current payments; risk contained but warrants monitoring .
• Expense trajectory back to ~$39M per quarter: Q2 includes ~$1M demolition; efficiency ratio should improve with revenue growth and fee normalization .
• Capital flexibility: post‑quarter buybacks resumed; sub debt strategy (partial retirement) balances shareholder returns with rate reset risk in Q4 .
• Tariff/macro caution, but TX footprint supportive: management sees healthy markets; any Fed cuts could further ease funding costs .
• Near-term positioning: overweight on signs of sequential NIM improvement; monitor asset quality headlines and payoff cadence for upside/downside to loan growth.