Southside Lifts Profit as Costs and Credit Improve
Deposits fell $705.1 million during the quarter as brokered balances were sharply reduced.
Southside Bancshares Inc. (SBSI), the bank holding company, reported a 23% increase in second-quarter profit as lower expenses and improved credit results offset pressure on lending spreads. Net income rose to $26.8 million from $21.8 million a year earlier and increased 15.4% sequentially.
The quarter marked an earnings improvement even as the company’s core interest margin narrowed and loan growth stalled. Higher noninterest income, a $24,000 reversal of loan-loss provisions and lower operating costs supported the result.
Diluted earnings increased 25% to $0.90 a share from $0.72 a year earlier. Annualized return on average assets improved to 1.23% from 1.07%, while return on average shareholders’ equity rose to 12.33% from 10.73%.
Net interest income slipped 0.6% sequentially to $57.3 million, reflecting higher liability balances, a less favorable funding mix and lower earning-asset yields, though it remained 5.7% above the year-earlier period. Net interest margin compressed to 2.80% from 2.91% in the first quarter and 2.82% a year earlier as the tax-equivalent interest spread narrowed.
Noninterest income rose 15.3% from a year earlier to $14.0 million, helped sequentially by bank-owned life-insurance income, deposit services and trust fees. Noninterest expense declined 1.5% to $38.7 million, bringing the efficiency ratio down to 54.42% from 55.67% a year earlier.
Loans edged up 0.1% during the quarter to $4.95 billion and were 7.6% higher than a year earlier. A $41.7 million decline in construction loans offset growth in commercial owner-occupied, municipal and other commercial lending. Southside expects to meet its mid-single-digit loan-growth target for 2026.
Deposits declined 10.3% sequentially to $6.17 billion after Southside reduced brokered deposits by $777.9 million, while commercial and retail deposits increased $93.5 million. The company replaced the funding with other and Federal Home Loan Bank borrowings, which more than doubled to $1.42 billion, although the cost of total deposits fell 19 basis points to 1.94%.
Credit quality remained supportive, with nonperforming assets holding at 0.11% of total assets and falling 70.2% from a year earlier after a restructured commercial-real-estate loan was paid off. Classified loans declined sequentially to $260.1 million, though they remained above the year-end level, leaving the funding shift and elevated classifications as constraints on further earnings gains.