Southside Bancshares (NASDAQ:SBSI) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Southside Bancshares, Inc. reported third-quarter earnings per share of $0.93, with a return on average assets of 1.27% and a return on average tangible common equity of 16.31%. The tax-equivalent net interest margin improved to 3.02%, benefiting from improved loan and security yields and stable funding costs.
The company moderated its loan growth guidance to low- to mid-single digits for 2026 due to anticipated slower commercial real estate originations and expected continued payoffs. A total of $400 million in new loans was produced in Q3, with $276 million funded during the quarter.
Southside Bancshares hired a new Director of Treasury Management and initiated a second branch construction project in Burleson, Texas. Ongoing construction in Salina Prosper is expected to complete by Q2 2027.
Net income increased by $1.1 million (4.2%) from the previous quarter, and the securities portfolio grew by $49.3 million. Deposits decreased by $155.6 million, driven by a $200.2 million decline in public fund deposits, partly offset by a $49.4 million increase in brokered deposits.
Management highlighted a focus on growing the consumer lending business and exploring opportunities for team lift-outs in various markets. The company repurchased 36,474 shares post-quarter at $30 per share and remains open to potential acquisitions in 2027.
Full Transcript
OPERATOR
Welcome to Southside Bancshares, Inc. third quarter 2026 earnings call. After today’s prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star-one to raise your hand. To withdraw your question, press star-one again. I will now hand the conference over to Lindsay Bales, Senior Vice President, Investor Relations. Lindsay, please go ahead.
Lindsay Bales (Senior Vice President, Investor Relations)
Thank you, Melissa. Good morning, everyone, and welcome to Southside Bancshares’ third quarter 2026 earnings call. A transcript of today’s call will be posted on southside.com under Investor Relations during today’s call and in other presentations and disclosures. I’ll remind you forward-looking statements are subject to risks and uncertainties. Factors that could materially change our current forward-looking assumptions are described in our earnings release and our Form 10-K. Joining me today are President and CEO Keith Donahoe, CFO Julie Schamberger, and Chief Treasury Officer Sunny Davis. Keith will start us off with his comments on the quarter, then Julie will give an overview of our financial results, and Sunny will end with comments on securities and funding. We will have a Q&A session following Sunny’s remarks. I will now turn the call over to Keith.
Keith Donahoe (President and Chief Executive Officer)
Thank you, Lindsay, and welcome to today’s call. Third quarter results are highlighted by $0.93 earnings per share, a 1.27% return on average assets, a 16.31% return on average tangible common equity, and a 3.02% tax-equivalent net interest margin. Our tax-equivalent net interest margin benefited from improved loan and security yields and flat funding costs during the quarter. We expect the September Fed rate increase to be accretive to fourth quarter loan yields as approximately 55% of our loan book will reprice over the next 90 days.
Third quarter new loan production was strong but largely offset by payoffs, resulting in a relatively flat loan balance during the quarter. Recognizing that commercial real estate originations may slow with recent rate increases and our expectation of continued payoffs, we are moderating our loan growth guidance to low- to mid-single digits for 2026. Third quarter new loan production totaled approximately $400 million, of which $276 million funded during the quarter.
Excluding regular amortization and line of credit activity, third quarter payoffs totaled $281 million. This was down slightly from second quarter payoffs totaling $297 million. Third quarter payoffs are heavily weighted towards CRE and include four multifamily loans accounting for just over half of our payoffs. On a positive note, these payoffs resulted in a $15 million decrease in classified assets for the quarter. Our loan pipeline totals $1.2 billion today, down from the second quarter levels of $1.4 billion. We’ve issued term sheets on approximately $222 million of this pipeline, with $99 million in the closing process. Commercial construction loans and commercial lines of credit represent approximately 56% of the pipeline, while full-funding term loans represent approximately 44%, a change from the second quarter pipeline when term loans made up approximately 52% of the total pipeline.
C&I loans, including owner-occupied real estate loans, increased approximately 5% during the quarter and now represent 18% of our total loan portfolio, up from 16% at year-end 2025. In addition, C&I opportunities represent approximately 24% of today’s total pipeline. Other notable third quarter items include a newly hired Director of Treasury Management and the start of a second branch construction project. The new start is located south of Fort Worth in Burleson, Texas, and expands our commitment to the greater Fort Worth market. Additionally, the Salina Prosper construction project continues to move forward with completion expected in the second quarter of 2027.
When considering our net income, earnings per share, and other financial results, we had an excellent quarter overall. The markets we serve remain healthy, and the Texas economy is anticipated to grow at a faster pace than the overall U.S. growth rate. With that, I look forward to answering questions, and I’ll turn the call over to Julie.
Julie Schamberger (Chief Financial Officer)
Thank you, Keith. Good morning, everyone. Welcome to our third quarter earnings call. We are pleased to report net income of $28 million, a linked-quarter increase of $1.1 million, or 4.2%. Diluted earnings per share were $0.93 for the third quarter, up $0.03 per share linked quarter, a 3.3% increase. Loans increased slightly compared to the second quarter to $4.96 billion as of September 30, and the average rate of loans funded during the third quarter was approximately 6.1%, consistent with the second quarter and down from 6.3% in the first quarter.
As of September 30, our loans with oil and gas exposure were $54.6 million, or 1.1% of total loans, a decrease of $21.5 million compared to $76.1 million on June 30, driven by payoffs associated with one relationship. Nonperforming assets increased by $6 million, or 61.6%, linked quarter, largely driven by a $5.2 million CRE loan that subsequently paid off in full on October 1, 2026. Nonperforming assets remain low on a linked-quarter basis at 0.18% of total assets. At quarter end, our allowance for credit losses increased to $50.4 million from $49.3 million on June 30. On a linked-quarter basis, our allowance for loan losses as a percentage of total loans increased 2 basis points to 0.94% at September 30.
The securities portfolio increased $49.3 million, or 1.8%, to $2.83 billion on September 30 when compared to $2.78 billion on June 30. The increase was mainly driven by purchases of mortgage-backed securities and, to a lesser extent, corporate bonds during the third quarter. As of September 30, we had a net unrealized loss in the AFS securities portfolio of $93.3 million, an increase of $83.5 million compared to $9.8 million last quarter, which was driven by the increase in longer-term rates.
On September 30, the unrealized gain on the fair value hedges on municipal and mortgage-backed securities was approximately $7.6 million, compared to $3.1 million last quarter. This unrealized gain partially offset the unrealized losses in the AFS portfolio. Our AOCI on September 30, 2026 had a net loss of $149.8 million compared to a net loss of $92.1 million on June 30, 2026. The net loss was comprised of net losses on our securities and swap derivatives of $133.9 million and $15.9 million related to our retirement plans.
As of September 30, the duration of the total securities portfolio was 7.8 years compared to 7.2 years at June 30, and the duration of the AFS portfolio was 5.9 years compared to 4.3 years on June 30. At quarter end, our mix of loans and securities was 64% and 36%, respectively, consistent with the second quarter. Deposits decreased by $155.6 million, or 2.5%, on a linked-quarter basis. This was primarily driven by a decrease in public fund deposits of $200.2 million and an overall decrease in commercial and retail deposits of $4.8 million, partially offset by an increase in brokered deposits of $49.4 million. The net decrease in commercial and retail deposits resulted from the seasonal $99.1 million commercial escrow account that funded during the second quarter and rolled off in July.
We remain well capitalized with strong capital ratios. Liquidity resources remain solid with $1.9 billion in liquidity lines available as of September 30. We did not repurchase any common stock during the third quarter. However, since quarter end we purchased 36,474 shares at an average price of $30 per share. Our tax-equivalent net interest margin was 3.02%, an increase of 12 basis points on a linked-quarter basis from 2.90% for the second quarter. Our tax-equivalent net interest spread for the same period was 2.36%, an increase of 10 basis points from 2.26%. The increase in the net interest margin and the net interest spread is primarily due to the higher yield on securities and loans and flat funding costs in the third quarter. Sunny will provide details on the higher yield in the securities portfolio during her remarks.
For the three months ending September 30, we had an increase in net interest income of $3 million, or 5.2%, compared to the linked quarter. Noninterest income decreased $271,000, or 1.9%, for the linked quarter due to decreases in BOLI income and swap fees and equity fair value adjustments included in other noninterest income. Our trust and brokerage services continued to perform well this quarter. Trust fees increased $259,000, or 10.8%, linked quarter and increased $1.5 million, or 27%, for the nine months ending September 30, 2026 when compared to the same period last year.
Wealth management and trust assets under management increased to $1.8 billion on September 30 compared to $1.5 billion on September 30, 2025. Additionally, brokerage services income increased $137,000, or 9.8%, linked quarter and $795,000, or 22.6%, year to date compared to the same period in 2025. Noninterest expense was $39 million for the third quarter, an increase of $346,000, or 0.9%, compared to the linked quarter. The increase was largely driven by an increase in salaries and health expense. Our fully taxable-equivalent efficiency ratio decreased to 51.55% as of September 30 from 52.96% last quarter due to the increase in net interest income partially offset by the increase in noninterest expense. Our budget indicates average noninterest expense of approximately $40.5 million for the fourth quarter.
We recorded income tax expense of $6.3 million compared to $5.7 million in the prior quarter, an increase of $542,000, or 9.4%. Our effective tax rate was 18.3% for the third quarter compared to 17.6% last quarter, and our current estimate for the 2026 annual effective tax rate is 18%. At this time I will turn the call over to Sunny. Thank you.
Sunny Davis (Chief Treasury Officer)
Thank you, Julie. There were several factors that contributed to the linked-quarter increase in securities income, such as the average book balance increased approximately 11 million, amortization expense decreased 638,000, interest income on the fair value swap increased 163,000. Cash flows reinvested during Q3 brought approximately 35 basis points higher yields than those purchased in Q2. Also, various bank sub-debt bonds repriced from fixed to floating, and we received a one-time prepayment penalty on a CMBS of 65,000.
The MBS purchases of 172.2 million in the third quarter have coupons ranging from 5 to 6%, a duration of 6.9 years, and yield 5.75%. These were purchased at slight premiums. Corporate bond purchases of bank sub-debt were 19.5 million and were new issues of investment-grade credit yielding an average rate of 6.63%. We expect to reinvest future cash flows from the securities portfolio into AFS, MBS, and potentially to a lesser extent into bank sub-debt while maintaining the balance of securities at approximately 2.8 billion.
The principal cash flows we received during the quarter were 55.6 million, a decrease of 53.9 million linked quarter. The spot rate on our CDs was 3.62% at quarter end, a decrease of 5 basis points linked quarter. The average rate was 3.62 during the third quarter, a 7 basis point decrease from Q2. CDs totaling 517 million with an average rate of 3.63 will reprice in Q4. We expect to retain the majority of these deposits but believe there will be a near-term need to increase the rates offered due to competition. Additionally, 1 billion in CDs with an average rate of 3.64 will reprice in the next 12 months.
We adjusted CD rates and high-yield savings rates after the Fed Funds increase in September, maintaining an approximate average beta of 35 on those accounts. Our public fund deposits decreased 200.2 million in the third quarter. Approximately 141 million was due to maturing CDs requiring renewal rates we were unwilling to pay. The remaining decrease was due primarily to construction draws from bond funds. We have certain non-maturity deposit accounts with exception pricing. There were no interest rate adjustments to these accounts in Q3 other than on an individual basis. We have seen a higher cost on recently acquired deposit accounts versus existing accounts in the third quarter.
New deposit accounts, including CDs but excluding brokered and public funds, at an average rate of 2.64% versus existing accounts averaging 1.57%. With typical deposits were 338.5 million at quarter end, a decrease of 21.6 million linked quarter. Many of these accounts are included in the exception pricing. Approximately 83% are commercial and 17% are consumer linked quarter. Our wholesale funding increased 334.3 million to 1.7 billion. This includes an increase in brokered deposits of 49.4 million. The increase was primarily due to a decrease in public fund deposits and an increase in the book value of securities. Our cash flow hedge notional remains at 615 million with no maturities or additions in Q3. The next maturity is a 25 million notional maturing in November, currently at a rate of 4.75%. After this maturity and some amortization related to past unwinds is fully expensed in October, the rate on our current cash flow hedges will drop approximately 25 basis points, assuming current spreads.
However, if we were to replace the Q1 2027 maturities at current rates, that 160 million would reprice approximately 150 basis points. We have a notional of 291.1 million in fair value swaps on municipal and MBS securities. This is a reduction of 67 million linked quarter due to an MBS maturity on September 1st. Approximately 37% of our loans have fixed rates and 63% have a floating rate, with approximately 82% of our floating rate loans having floors. We have approximately 318 million in fixed-rate loans that mature or reprice in the next 12 months. 131.1 million of those are in Q4.
Of the loans maturing or repricing in the next 12 months, 137.5 million have an average rate of 3.7. We are currently modeling Fed Funds to be flat for the remainder of 2026 as forecast by Moody’s. Should rates increase in the short term, we could expect a positive impact on net interest income. Since we are assets, we are modeling a beta of 39 on non-maturity deposits. Thank you for joining us today. This concludes our prepared comments, and we will now open the line for your questions.
OPERATOR
We will now begin the question-and-answer session. If you would like to ask a question, please press star one. To raise your hand to withdraw your question, please press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brett Rabatin with StoneX Group.
Your line is now open. Please go ahead.
Brett Rabatin (Analyst)
Hey, good morning, everybody. Thanks for the questions. Wanted to first start off on the margin and the securities yield. It seemed like there was a lot of noise in the linked-quarter change in the yield. Like, I was trying to write down all the numbers you guys were mentioning about the various line items that impacted that. Does the securities portfolio yield hold at these levels, or could there be some atrophy? And then I guess I’m just curious.
You’re talking about being asset sensitive, but it does seem like you’ve done a great job managing the funding costs here, particularly in 3Q. But it sounds like maybe the fourth quarter might be somewhat higher in terms of the funding costs. So I was just hoping to encapsulate all of the variables there. I know the margin’s hard to predict, but I was just trying to understand a little bit better what might happen from here.
Julie Schamberger (Chief Financial Officer)
Okay, so on the securities portfolio, of course we had the one-time CMBS prepayment of 65,000, and some of that fair value swap income, the 163, is related to ineffectiveness, and that was an expense to us in the first half of the year. It flipped, so it was now income in the third quarter. So in the fourth quarter, I don’t see the same amount of change as far as, I mean, the yield on the purchases. I mean, I see that holding because our prepays have slowed down.
You know, it was a $638,000 decrease in our amortization expense linked quarter. So I see that being consistent in the fourth quarter. I mean, not down another 638, but being flat in Q4 to Q3 because we haven’t seen the huge prepayments that we saw in the first quarter and into April of this year.
Keith Donahoe (President and Chief Executive Officer)
On the loan side, we’ve spent a lot of time over the last two years making sure that the new real estate transactions we’re booking, for the most part, are floating-rate transactions. Customers are always interested in interest rate protection, so we are putting them into back-to-back swaps, and we’ve done a really good job of that in the last couple of years. And so 55% of our book is floating and, well, actually floating is a little bit higher, but 55% of our book will be repricing, and most of that repricing has now happened since the Fed move in September, and we only had two weeks of that benefit in the third quarter.
So I’m pretty bullish on the fact that if rates continue to move up, we’re going to see the benefit. There’ll be somewhat of a lag, but most of that loan portfolio is priced at a floating transaction. It’s 30 days SOFR plus a spread.
Sunny Davis (Chief Treasury Officer)
I mean, on the funding side, we will see some increase in our CDs that are coming up for repricing because, you know, they’re going to be pricing probably into the 3.90 range from an average—they’re averaging right now in below 3.60s. And on wholesale at quarter end, our non-swapped wholesale was 4.03. I see that increasing. I’m going to try to keep it around 4.10, but it could creep up to 4.15. But I think these are smaller dollar amounts, and the betas on the CDs for sure are smaller than the betas on the loan side.
The loan amounts are higher, and the beta’s 100%.
Brett Rabatin (Analyst)
Okay, that’s good color. And then I saw that you had the passive payoff and classifieds down to 245 from 260. Was just hoping to get any additional color. I know there’s several multifamily projects in Austin that you guys have been working on. Just was hoping for maybe any update on those and, you know, how you guys kind of see asset quality from here. You obviously had no charge-offs this quarter, so credit continues to be fairly benign, but was just hoping for some additional color on those properties.
Keith Donahoe (President and Chief Executive Officer)
Yeah, I guess I kind of want to reiterate we are very conservative with our risk rating, and that comes from a lot of experience in the real estate market in particular, where we know the sooner you identify struggles, the easier it is to manage. And so we’re pretty good and focused on making sure that we’re identifying issues early. As a result, you saw somewhat of a spike in our classified assets earlier in the year. We did not and still do not see any true losses coming out of those larger real estate transactions, as indicated by the fact that we haven’t seen the charge-offs and we continue to see a reduction in our classified assets.
Many of these assets are the four that paid off—the four multifamily assets that paid off in the third quarter. Two of them were refinanced by life companies, one was, I think, refinanced by a debt fund, and one was an open market sale. So it’s a sign of a healthy real estate portfolio in spite of the fact that we’re pretty critical on our risk rating. So I anticipate more of the same. There’s nothing that is sticking out for sure in the near term that causes me any concern.
There’s always surprises, but we hope that we are engaged with our lending staff early and often to identify those. But right now there’s nothing on the horizon that indicates any major issues.
Brett Rabatin (Analyst)
Okay, that’s really helpful. Thanks so much.
OPERATOR
Your next question comes from the line of Woody Le with KBW. Your line is now open. Please go ahead.
Woody Le (Analyst)
Hey guys. Wanted to start out on the margin again, and if I think back to last quarter, we had talked about, you know, the potential for additional NIM pressure unless we get a rate hike. Well, we got the rate hike, but it came kind of at the end of the quarter. So it feels like the margin outperformed expectations, and I was just curious, from y’all’s perspective, what were the biggest surprises in your view that allowed for this, you know, this positive snapback?
Keith Donahoe (President and Chief Executive Officer)
I think one of them is we were pleasantly surprised that we won a couple of loan transactions that have slightly higher spreads, which helped. But in addition to that, I think Sunny and her team has done a great job on managing the funding costs. So, Sunny, you want to add anything?
Sunny Davis (Chief Treasury Officer)
No, I mean, we’ve just been very diligent about it, and we’ve moved our sources, as you can see. We went back into the brokered market some. We’ve continued to do that in Q4 just because those rates have come down, and we’ve seen they’re advantageous over borrowing from FHLB. We’ve maxed out our collateral at the discount window and continue to borrow there because that is the cheapest rate that we can get wholesale-wise. And, you know, we unfortunately had to let some public funds go, and so that was due to rate.
So we’re just watching and, you know, just being opportunistic and being cautious with our exception pricing as well. I mean, we get requests multiple times a day for exception pricing on deposit accounts, and, you know, we set some parameters around that, and I think we did well with that in Q3.
Keith Donahoe (President and Chief Executive Officer)
That help, Woody?
Woody Le (Analyst)
Got it. Yeah, no, that’s really helpful, and I guess because y’all have been very active on the liability optimization to find the best rate, sometimes it can be a little bit tough from my seat to get a sense of the core deposit trends given some of the movement. I was just curious if y’all had a spot rate, a cost of deposits at the end of the month, and just general expectations for deposit costs from here post rate hike.
Keith Donahoe (President and Chief Executive Officer)
I’m looking at Sunny. I don’t know we have that specific number.
Sunny Davis (Chief Treasury Officer)
I mean, on cost of deposits, Woody, they were 1.89% in the third quarter versus 1.94% in the June 30th.
Woody Le (Analyst)
Yeah, yeah. I just didn’t know if y’all had a spot cost, you know, post rate hike and, you know, the direction that’s trending.
Sunny Davis (Chief Treasury Officer)
I had it for CDs. It was 3.62% for CDs, and then our existing deposit base was 1.57%, including CDs but not including brokered and public funds at quarter end, and then the newly put-on deposits was the higher—what was it? 2.262‑ish during the quarter.
Keith Donahoe (President and Chief Executive Officer)
So yeah, as we’re—you know, deposit competition is real, and we’re going to see upward pressure on our pricing. We do have some initiatives in place that they’re not going to move the needle tomorrow, but over time they will, whereby we are actively—that one reason I highlighted the growth in our CNI business is because we truly believe that CNI business drags in more deposits, stickier deposits, and a lot of times cheaper‑priced deposits because you get larger non‑interest‑bearing accounts.
And so we are very focused on that as an organization, and as we grow into the metro markets that’s our growth pattern—it’s going to lead with CNI. We’ve got real estate covered and we’ll continue to grow that book, but the CNI is really about—it’s loan growth, but it’s also deposit‑growth geared.
Woody Le (Analyst)
Yeah, I appreciate the color. I guess just last for me, it was good to hear y’all positively surprised on some of the loan yields y’all are getting on a couple of credits, and just curious how that pricing and spread has held up so far in October.
Keith Donahoe (President and Chief Executive Officer)
Yeah, you know, don’t get me wrong, it’s still competitive out there, and where you may see some lift—and I don’t have these numbers—but yeah, we booked quite a few construction loans over the last 18 months that are going to start funding up. The ones that were booked a year ago to 18 months ago had significantly higher spreads, and so we will benefit from that over the next six months as they start to fund up. So maybe before the next call I’ll have some color on what we anticipate from a construction draw funding because those spreads are higher.
But it is still hand‑to‑hand combat both on loan spreads as well as deposit pricing.
Woody Le (Analyst)
Yeah. All right, well great. Thanks for taking my questions.
Keith Donahoe (President and Chief Executive Officer)
Thank you.
OPERATOR
Your next question comes from the line of Michael Rose with Raymond James. Your line is now open. Please go ahead.
Michael Rose (Analyst)
Hey, good morning, guys. Thanks for taking my questions. Just wanted to go back to some of the comments you made, Keith, on loan production and pipelines, and I think you said the pipeline was down about 200 million from last quarter. Obviously you’ve had some payoffs, and, you know, rates probably going to move higher at least one more time—we’ll see. But how should we think about the payoffs? And, you know, I know obviously just given what you’ve had over the past couple quarters, the loan growth for the full year is a little bit subdued versus your prior expectations.
But as we kind of contemplate next year, with likely some continued theory payoffs and ongoing growth in other parts of the business, I mean, is kind of the low to mid‑single digits the way we should at least initially think about growth for next year? Thanks.
Keith Donahoe (President and Chief Executive Officer)
Yeah, you know, I wouldn’t expect a drastic change in 2027. We are putting in—so we’ve got a couple of initiatives to help even out the loan growth, if you will. Historically, we’ve not spent a lot of time on the retail side of the business. We have an effort in place right now to grow our consumer lending business. Some of that’s going to come through a home equity line of credit product that is out and available to customers today—just started in the last 30 days.
So we’re hopeful that helps move some needles. We are also focused on just general consumer lending, and if you go back and look at our numbers over the last 10 years, that portfolio has just declined every year and we’re going to try to turn that around. I’m not telling you we’re going to book $100 million worth of that next year, but it is something we’re focused on. In addition, we are actively engaged with potential team lift‑outs in different markets. As everybody knows, there’s been a lot of disruption in the metro markets in particular, although we’ve also seen it here in the East Texas market. Many of those folks are not in a position to make that move yet, but I do think early ’27 and throughout ’27 those opportunities are going to come our way, and we are actively looking. Those won’t have an immediate impact on loan growth, but they will over the next 24 months to 36 months.
Michael Rose (Analyst)
That’s helpful color, Keith. I appreciate all the commentary. Maybe just as a follow‑up, it was good to see you guys repurchase some stock after quarter‑end. Capital levels obviously still very strong. I know the TCE impacted by the AOCI impacts that you and others are facing. How should we think about, you know, buybacks from here? And I know you previously talked about M&A—just any updated thoughts there? Thanks.
Keith Donahoe (President and Chief Executive Officer)
Yeah, I guess one way to say it is unfortunately when you see us buying stock, it’s because our stock is trading below where we think it should be. So we will continue to be opportunistic with those purchases, and, you know, an acquisition is still something that’s likely in our future. I continue to meet folks and have discussions, but there’s obviously nothing active today. But we do think in 2027 there may be some opportunities that come our way.
Michael Rose (Analyst)
All right, thanks for taking my questions.
OPERATOR
Your next question comes from the line of Matt Olney with Stevens. Your line is now open. Please go ahead.
Matt Olney (Analyst)
Hey, thanks for taking the questions. I want to ask about your loan‑to‑deposit ratio—it is now, I think, a little over 80%, the highest we’ve seen in a while. Curious, kind of, your expectations here. Can this continue to move higher? Just any thoughts there? Thanks.
Keith Donahoe (President and Chief Executive Officer)
You know, I can’t tell you it’s not going to go a little bit higher. But we are—you know, it all depends on our ability to go gather deposits, and brokered deposits might have a positive effect on that ratio as we move back into that market again. We’re pretty opportunistic, and Sunny’s team literally daily manages that funding side, and so that was probably the biggest hit. It wasn’t—as you could tell—it wasn’t that we were outstripping loan growth from our deposits.
We just moved out of brokered deposits earlier this year; that spiked that ratio.
Matt Olney (Analyst)
Got it. And, Keith, on the brokered side, is there any strategic target or percentage of deposits that you’re targeting for brokered versus non‑brokered?
Keith Donahoe (President and Chief Executive Officer)
We have internal limits, but no, there’s not a target. It’s just, as long as we need wholesale, we’re just looking for the best rate.
Matt Olney (Analyst)
Okay, appreciate that. And then, Keith, you mentioned the strong CNI growth, and it sounds like some good pipelines there. Any more color? I think you made some nice hires over the last few years. I would assume some of this pipeline growth is from those new hires. Any more color on the CNI performance?
Keith Donahoe (President and Chief Executive Officer)
Yeah, some of that is coming from the Houston team that was—you know, we’ve now been together a couple of years, so they really are starting to get their footing. A lot of that growth also came right out of our East Texas markets. We—you know, as I’ve pointed out a number of times, we’ve long been CNI throughout East and Southeast Texas, and we do it really well. And we’ve had some hires here in the East Texas market that have really helped drive some of that.
And we’re anticipating a handful of other hires in the East Texas and Southeast Texas markets that can help do that as well.
Matt Olney (Analyst)
Okay, thanks for the color. I’ll step back.
OPERATOR
Your next question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open. Please go ahead.
Stephen Scouten (Analyst)
Hey, appreciate the time here.
Keith Donahoe (President and Chief Executive Officer)
Thank you.
Stephen Scouten (Analyst)
Maybe going back to the NIM outperformance here in the quarter—I mean, it’s great to see cost of deposits down. Five bps seemed to be the primary driver. Is the anticipated pressure on funding costs primarily dependent on loan and overall balance sheet growth? Is it just that you were able to shrink deposits this quarter because of the lack of loan growth that kept that pressure from manifesting? Is that kind of the right way to think about it?
Keith Donahoe (President and Chief Executive Officer)
You want to answer?
Sunny Davis (Chief Treasury Officer)
I don’t know that that is the reason.
Keith Donahoe (President and Chief Executive Officer)
Yeah, we had a seasonal deposit relationship that spiked in the second quarter and moved out in the third quarter, so some of that contributed to our deposit reduction. But I think, you know, because of the effort we’ve done with moving to a more floating‑rate book, so far our loans have repriced at a higher rate than what our deposit cost increase has been. We anticipate that to continue. I know I would love to say that, you know, we can keep it at a 15‑basis‑point delta, but as long as we’re able to reprice the loans faster—which this is different, something that everybody ought to be aware of—the last time rates rose, we were not in a position to reprice our loan book as fast as we’re able to reprice our loan book today.
In addition, Sunny pointed out we’ve got about $131 million in loans that come up for maturity or repricing in the fourth quarter, and those rates right now in that book are about 4.74—I think he said 4.75. And so we anticipate moving those to, you know, more market rates. That will help also improve the loan yields.
Stephen Scouten (Analyst)
Got it. And have you guys quantified at all kind of the impact of each potential 25‑basis‑point hike on the NIM? If we get these two more hikes that the forward curve suggests, is that a couple basis points per hike, or do you have a number that is a proxy there?
Keith Donahoe (President and Chief Executive Officer)
We have not run that number specifically. We’re making a note. We’ll see when we get that out to you.
Stephen Scouten (Analyst)
Okay, great. And then just thinking about the securities book, it sounds like you guys are increasing the duration of the securities book a bit. Can you talk to me about the strategy there, or maybe what that signals where you think rates could be going over the longer term, maybe just any color?
Keith Donahoe (President and Chief Executive Officer)
That had more to do with the rising‑rate environment stretching out the duration than intentional movement by us. You know, in a perfect world, I’d love to see a three‑ to four‑year duration in our entire securities book, but with almost half of it HTM, we’re not able to do that. But hopefully that answers your question.
Stephen Scouten (Analyst)
Yeah, that’s good. And then just lastly, with the move to more C&I loans on your books and in the pipeline as well, should we expect to see the loan loss reserve as a percentage of loans increase kind of in tandem with that increase in C&I loans? Do you hold more reserves against those loans than the CRE loans?
Keith Donahoe (President and Chief Executive Officer)
You know, I haven’t dug in specifically on that. I don’t anticipate it having a material effect, and one reason is because as tight as we are on real estate credit, we’re probably a little tighter on C&I credit. So we can—I’ll look at that number and maybe provide some guidance on that in future meetings. Right now it’s not something that I anticipate to be a material increase in reserves.
David
About a 1.11 on the commercial, the pure commercial. Not any real estate, just commercial. I don’t know if you heard that.
Keith Donahoe (President and Chief Executive Officer)
Probably not. I was, Steven, but Julie said that we have a 1.11 coverage on just pure commercial. It does not include commercial owner-occupied. Yeah, no, it doesn’t online, and those are higher.
David
So maybe a little bit higher then. But not materially because you guys remain very tight on that credit box. So that’s great to hear. Okay. Fantastic. Thanks for all the color today. Appreciate it.
Keith Donahoe (President and Chief Executive Officer)
Thanks, David.
OPERATOR
There are no further questions at this time. I will now turn the call back to Keith Donahoe, president and CEO, for closing remarks.
Keith Donahoe (President and Chief Executive Officer)
Thank you, everyone, for joining us today. We appreciate your interest in Southside Bancshares, along with the opportunity to answer your questions. We’re optimistic about 2026 and moving forward into 2027, and look forward to joining y’ all on the earnings call in January. Thank you.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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