SOUTHSIDE BANCSHARES INC Q4 FY2025 earnings call

• Keith mentioned selling $82 million of lower-yielding municipal securities in the fourth quarter, generating a $7.3 million net loss, with expected payback on third quarter sales in less than 3.5 years. Net interest income increased due to lower funding costs and moderate loan growth. - Julie discussed net income of $21 million for Q4 and $69.2 million for 2025, loan details including $4.82 billion in loans with a linked quarter increase, securities portfolio restructuring with purchases of $373 million in mortgage-backed securities, deposit changes, and capital ratios remaining strong. - Noninterest income excluding securities loss increased linked quarter, noninterest expense was $37.5 million in Q4, and the fully taxable equivalent efficiency ratio decreased.

For the fourth quarter, net interest income increased by $1.5 million linked quarter, with the net interest margin expanding to 2.98%. Loans were $4.82 billion as of December 31, a linked quarter increase of $52.7 million. The securities portfolio increased to $2.70 billion at December 31. Deposits decreased $96.4 million linked quarter. Nonperforming assets remained low at 0.45% of total assets. Loan production for the fourth quarter was $327 million, with unfunded portions expected to fund over 6-9 quarters. The loan pipeline rebounded to just over $2 billion, balanced with ~42% term loans and 58% construction/commercial lines of credit.

• Budgeted a 7% increase in noninterest expense in 2026 related to salary, software, professional fees, etc. - Anticipates first quarter 2026 noninterest expense to be approximately $39.5 million, including a onetime charge for sub debt redemption. - Expects net interest margin expansion from the redemption of $93 million of subordinated debt on February 15, 2026. - Remains opportunistic with stock buybacks, considering M&A impact on capital strategy.

• Market conditions could impact future securities sales and loan payoff trends. - Uncertainty around the pace of loan pipeline early-stage loans funding and the impact of payoffs on loan growth.

Q: Details on 2026 expense build related to software projects and hiring strategy.

A: Keith mentioned moving core system off-premise and starting a data platform initiative as key software components, with FTEs down ~6% linked quarter and ~$2.3-2.4 million additional software spend budgeted.

Q: First quarter margin expectations and loan growth outlook.

A: Margin expected to be positive but muted initially, picking up later; loan production anticipated to exceed 25% but affected by payoffs, with pipeline rebounded to over $2 billion.

Q: Buyback pace and capital strategy.

A: Remains opportunistic with buybacks, considering M&A impact on capital allocation.

Q: Fee income outlook and securities portfolio actions.

A: Expected increase in fee income from trust, treasury, and brokerage; securities portfolio actions will be opportunistic based on market rate changes.

Q: M&A disruption and target asset size.

A: Seeing opportunities in M&A for people and customers, targeting lower $2 billion market to work towards approaching $10 billion in assets.