Southside Bancshares (NASDAQ:SBSI) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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The full earnings call is available at https://events.q4inc.com/attendee/221321903
Summary
Southside Bancshares reported solid financial results for Q1 2026, with a 2.7% linked quarter loan growth and an EPS increase to $0.78.
The company redeemed $93 million of subordinated debt with a 7.51% interest rate, which benefited Q1 funding costs and is expected to further benefit Q2.
Net income rose to $23.3 million, with a 10.8% increase compared to the previous quarter, driven by strong loan production and low payoffs.
The company is targeting mid-single digit loan growth for 2026 due to expected elevated payoffs later in the year, despite strong Q1 loan production.
Strategic initiatives included opening a full-service branch in Woodlands and hiring a 30-year wealth management veteran to expand the Dallas-Fort Worth market.
Non-performing assets decreased significantly, and credit quality remains strong with a low 0.11% of total assets.
Southside Bancshares reported a net interest margin improvement to 3.01% and plans to reinvest future securities portfolio cash flows into AFS mortgage-backed securities.
Management is optimistic about Texas’s economic growth outpacing the US average and anticipates ongoing asset sensitivity to positively impact the net interest margin if rates remain stable.
Full Transcript
OPERATOR
Thank you Rebecca. Good morning everyone and welcome to Southside Bancshares’ first 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 disclosures and presentations. 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 Schamburger and Chief Treasury Officer Sunny Davis. Keith will start us off with his comments 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 CEO)
Thank you Lindsey and welcome to today’s call. We are pleased to report solid financial results for first quarter of 2026. Highlights include strong linked quarter loan growth of 2.7%, increased earnings per share of $0.78, improved annualized return on average assets of 1.10% and an annualized return on average tangible common equity of 14.39%. Lower funding costs resulted in a $441,000 linked quarter increase in net interest income and an improved Net Interest Margin (NIM) of 3.01%. Our funding cost benefited from the February 15th redemption of approximately 93 million of subordinated debt which had an interest rate of 7.51% interest rate. Second quarter funding costs will also benefit from this redemption. First quarter loan growth was driven by strong new loan production combined with lower than expected payoffs. Although we experienced strong first quarter loan growth, we continue to target mid single digits for 2026 loan growth due to an expected return to elevated payoffs for the remainder of the year. New loan production of approximately $431 million compared to 327 million in the prior quarter of the new loan production. Approximately $240 million funded during the quarter, with the unfunded portion of this quarter’s production expected to fund over the next six to nine quarters. Excluding regular amortization and line of credit activity, first quarter payoffs totaled approximately 113 million and represents the lowest payoff amount during the past four quarters. The single largest payoff during the quarter was the $27.5 million multifamily loan previously included in our non performing asset category. In mid February, the borrower successfully refinanced the loan balance with a life insurance company. Additional payoffs during the quarter included an office building several small retail centers, an industrial warehouse, a skilled nursing facility and several commercial land loans. Our loan pipeline today totals approximately 1.3 billion dollars, down from a mid quarter peak of about 2 billion. Despite the reduction, our one but not closed category remains healthy at just over 331 million. The pipeline remains well balanced with approximately 44% term loans and 56% construction and or commercial lines of credit. This is relatively unchanged from the fourth quarter mix. CNI related opportunities represent approximately 24% of today’s total pipeline. This is up slightly from year ends total of 20%.. During the quarter we migrated four multifamily loans and one office loan to substandard. The two multifamily loans originated as construction loans and are currently experiencing slower lease up and lower rents than originally underwritten. The remaining two multifamily projects originated as term loans and have experienced a decline in occupancy and reduce rental rates. All four credits are supported by experienced real estate borrowers, including equity partners providing financial support. Over the next six to 12 months we expect successful resolutions either through open market sales or refinances. Despite the substandard increase, credit quality remains Strong. During the first quarter, non performing assets totaled $9.7 million, a decrease of 28.5 million from December 25th. The reduction was primarily related to the previously mentioned $27.5 million multifamily loan which paid off in February as a percentage of total assets. Non performing assets remain low at 0.11% of total assets. Other first quarter activities included replacing our Woodlands Loan production office with a full service branch and a new branch in our fast growing home market of Tyler. Additionally, we are particularly excited to report the hiring of a 30 year wealth management veteran charged with building out our wealth management team and expanding our platform throughout the Dallas-Fort Worth market. When considering our net income, earnings per share, expanded footprint and a key hire in our wealth management group, we had an excellent quarter overall. The markets we serve remain healthy and the Texas economy is anticipated to grow faster at a faster pace than the overall projected U.S. growth rate. With that, I’ll turn the call over to Julie.
Julie Schamburger
Thank you Keith Good morning everyone and welcome to our first quarter earnings call. We’re pleased to report a solid start to 2026. For the first quarter we reported net income of $23.3 million, an increase of $2.3 million or 10.8%. diluted earnings per share were $$0.78 for the first quarter, an increase of $0.08 per share linked quarter or 11.4% as of March 31. Loans were $4.95 billion, a linked quarter increase of 128.2 million or 2.7%. The linked quarter increase was driven by increases of $93.2 million in construction loans, $40.6 million in commercial real estate loans and 12.2 million in the commercial portfolio, partially offset by decreases of 9.6 million in municipal loans and 7.1 million in one to four family residential loans. The average rate of loans funded during the first quarter was approximately 6.3% as of March 31st. Our loans with oil and gas industry expense Those are over $72.1 million or 1.5% of total loans, a slight increase compared to $71 million linked quarter Non performing assets decreased to 0.11% of total assets of total assets at quarter end, a result of the payoff of the $27.$5 million commercial real estate loan restructured in the first quarter of 2025 and to a lesser extent a decrease in our non accrual loans. Our allowance for credit losses increased to $49.6 million for the linked quarter from $48.3 million on December 31st linked quarter. Our allowance for loan losses as a percentage of total loans decreased 1 basis point to 0.93% at March 31. The securities portfolio increased $164.3 million or 6.1% to $2.87 billion on March 31 when compared to $2.7 billion at year end. The increase was driven by purchases of $313.$5 million in mortgage backed securities during the first quarter. As of March 31, we had a net unrealized loss in the AFS securities portfolio of $16.3 million, an increase of $15.$5 million compared to $767,000 last quarter. There were no transfers of AFS securities during the first quarter on March 31st. The unrealized gain on the fair value hedges on municipal and mortgage backed securities was approximately $1.9$5 million compared to $788,000 linked quarter as of March 31st. The duration of the total securities portfolio was 7.4 years compared to 7.6 at December 31st and the duration on the AFS portfolio was 4.7 years compared to 4.8 years on December 31st. At quarter end our mix of loans and securities was 63% loans and 37% securities respectively, a slight shift compared to 64 and 36% respectively. At year end deposits increased slightly by $9.3 million or 0.1% on a linked quarter basis. Broker deposits increased $110.7 million however partially offset by a decrease of $82 million in retail deposits and $19.4 million in public fund deposits. We redeemed our 93 million of subordinated notes due in 2030. During February and at the time of the redemption, the notes had an interest rate of 751 and we recorded a loss of $791,000 on the redemption of the notes. We expect to see further savings in our funding costs during the second quarter. As a result of the redemption, our capital ratios remain strong with all capital ratios well above the threshold for well capitalized. Liquidity Resources remain solid with 2.68 billion in liquidity lines available as of March 31st. We did not repurchase any common stock during the first quarter and we have approximately 762,000 shares remaining that are authorized for repurchase. Our tax equivalent net interest margin was 3.01%, an increase of 3 basis points on a linked quarter basis up from 2.98% for the fourth quarter of 2025. Our tax equivalent net interest spread for the same period was 2.38%, an increase of 7 basis points from 2.31%. The increase in the net interest margin and the interest spread is primarily due to lower funding costs and for the three months into March 31st we had an increase in net interest income of $441,000 or 0.8% compared to the linked quarter. Non interest income excluding the net loss on sale of AFS securities decreased $303,000 or 2.3% for the linked quarter due to a decrease in deposit services income and a decrease in Boeing income partially offset by an increase in other non interest income. Other non interest income increased primarily due to an increase in swap fee income. Non interest expense was $40.6 million for the first quarter, an increase of $3.1 million or 8.3% compared to the linked quarter. The increase was largely driven by an increase in salaries and employee benefits, loss on the redemption of sub debt software and data processing and other non interest expense. Salary and employee benefits increased due to normal salary and employment tax increases at the beginning of the new year, additional stock compensation and a one time retirement expense related to a new split dollar agreement of approximately $$420,000. Other non interest expense increased primarily due to an increase in non service costs of retirement expense and a non recurring credit received in the fourth quarter. I mentioned during the last call that our budget indicated an increase of approximately 7%. Absent the loss on redemption and the one time retirement expense of 420, the linked quarter increase would have been a little over 5%. Our fully taxable equivalent efficiency ratio increased to 54.98% as of March 31 from 52.28% as of December 31 primarily due to the increase in non interest expense for the second quarter of 2026. We anticipate non interest expense of approximately 40.$5 million for the remaining quarters. We recorded income tax expense of $5 million compared to $3.8 million in the prior quarter, an increase of 1.2$5 million. Our effective tax rate was 17.8% for the first quarter and increase compared to 15.3% last quarter and we are currently estimating an annual effective tax rate of 17.8 for 2026. At this time I will return Turn the call over to Sunny thank you.
Sunny Davis (Chief Treasury Officer)
Thank you Julie the mortgage-backed securities (MBS) purchases in the first quarter have coupons ranging from 4.5 to 5.5%, a duration of 7 years and yield of 5.24%. Approximately 1/3 of the purchases occurred late in the quarter and were essentially pre purchases of April and May cash flows due to an opportunity in the market. These were purchased at discounts which will act as a hedge to the earlier purchases should prepay speeds increase. This 1/3 or approximately $106.6 million at a rate of 5.44% was not reflected in the yield of the securities portfolio in the first quarter. We expect to reinvest future cash flows from the securities portfolio into AFS mortgage-backed securities (MBS) and maintain the balance of of securities at approximately 2.7 to 2.8 billion. If presented with an opportunity similar to the one in March, we made free purchase again. The principal cash flows we received during the quarter were $127 million or an average of $42.3 million per month which includes $20 million from the maturity of two mortgage-backed securities (MBS) balloons held in HTML. I anticipate a pickup in prepays in the second quarter due to a higher mortgage-backed securities (MBS) balance, lower mortgage rates through early March and lower spreads. The spot rate on our CDs was 3.74% at quarter end compared to the average rate of 3.79% for the first quarter. CDs totaling $568 million with an average rate of 3.83% will reprice this quarter. We expect to retain most of these deposits and estimate an interest savings of roughly 10 basis points. Additionally, $1.06 billion with an average rate of 379 will reprice by year end. As Julie mentioned in her comment, our public funds decreased. There was some seasonality to this decrease. In Texas, various public fund entities collect ad valorem taxes in the fourth quarter through January of the following year then dispersed some of those funds prior to the end of the first quarter. There were also construction draws from bond funds. We hold for a couple of public fund entities as well as February debt service payments. I expect public funds in the second quarter to increase from the March 31st balance. Many of our public fund non maturity accounts have floating rates that adjust as frequently as weekly. We have certain. Excuse me, we have certain non maturity deposit accounts with exception pricing and the last adjustment made to the exception priced accounts was December 11th of 25 following the FOMC’s 25 basis point fed funds reduction on December 10th. The beta was 69% on the exception priced accounts and the beta on all non interest bearing non maturity deposit accounts net of brokered and public funds was approximately 25%. I estimate using the same beta if there is a short term rate cut in 2026, we have seen a higher cost on recently acquired deposit accounts versus existing account balances in the first quarter. New deposit accounts excluding brokered and public funds had an average rate of 2.37% versus existing accounts averaging 1.58%. However, the rate on the new accounts in March showed a downward trend to 2.06%. Reciprocal deposits were 363 million at quarter end, a decrease of $13.9 million linked quarter primarily due to a reduction in one relationship. Many of these accounts are included in the exception pricing. 84% of reciprocal deposits are commercial and 16% are consumer. Our wholesale funding increased 370.5 million linked quarter to 1.4 billion due primarily to fund the 128.2 million increase in loans and the 164.3 million increase in securities. The increase in wholesale funding includes increases in FHLB advances of 104.8 million, $110.7 million in broker deposits and 155 million in Fed discount window borrowings. We utilize a mix of wholesale funding sources and navigate between them based on rate and term offered and the current ALCO strategy. We have increased our collateral at the discount window and will continue to utilize this source of short term funding due to rate and prepay ability. During the first quarter, $245 million of cash flow swaps at a rate of 2.7% matured. It was however necessary to retain the funding and the rate on the new borrowings is approximately 3.75%. We have another $25 million in cash flow swaps maturing in November at a current rate of 4.62%. After this maturity and some amortization related to past unwinds is fully expensed in October, the rate on our cash flow swaps will drop to approximately 3.53%. Assuming SOFR is unchanged. We unwound 155 million in municipal loan swaps during the quarter creating a small gain that will be accreted over the life of the previously hedged items. This slightly improves our interest rate risk position in rates down scenarios. We no longer have any municipal loan swaps. We have a notional of $258.1 million in fair value hedges on municipal and mortgage-backed securities (MBS) securities. Approximately 38% of our loans have fixed rates and 62% have have a floating rate and approximately 81% of the floating rate loans have floors. We have 344.2 million in fixed rate loans that mature or reprice in the next 12 months. Approximately 209 million of these loans have rates at or below 4%. Approximately 44 million of the loans with rates at or below 4% reprice or mature and in the second quarter. We estimate a lift in the NIM as these loans repriced throughout 26 and during 1Q27. Our budget included two short term rate cuts of 25 basis points, one in June and another in September. Should rates remain at quarter end level through year end, we expect a positive impact on the NIM versus budget as we are asset sensitive. Thank you for joining us today. This concludes our 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, 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 and A roster. Your first question comes from Brett Rabitin from StoneX Group. Please go ahead.
Brett Rabitin
Hey, good morning everyone. I wanted to start on. I wanted to start on just the the loan growth outlook in the mid single digit guide and you know, solid production in the quarter. Lower payoffs aided the first quarter. I think I heard the number of 113 million for payoffs, but that number is expected to go higher. Can you maybe give us any color around what you’re expecting for payoffs in second quarter or third quarter and then just you know, the production pace if you expect that to continue at the current level or, or what it was during first quarter?
Keith Donahoe (President and CEO)
Yeah, I’ll start with the production side. I do anticipate us to continue to produce new loans at a similar rate. We’ve talked about it internally that we’re seeing good activity. The pipeline’s down a little bit, but I think that has way more to do with the loan officers were hunkered down closing new transactions in the first quarter and so they’re coming up for air and they’re going to rebuild that pipeline. We were fortunate. We didn’t see as many payoffs in the first quarter. But we do know we’ve got a number of real estate assets that are individually rather large that are going through their normal cycle. We were predominantly a construction lender for a long time and so those have technically a finite life that they build and lease up and and then move into either a sale or open market at refinance with other lenders on a permanent basis. So we know we’ve got some of that coming. And so I’m hedging our bet a little bit that it’s too early to call a change in our loan growth at this point because we do know we have a number of projects that are teeing up to get refinanced or sold.
Brett Rabitin
Okay, that’s helpful. And then maybe Julie on the funding costs, you know the money market decreases kind of slow. The CD portfolio might still be an opportunity but I think you mentioned the 237 for new accounts in the quarter. I don’t know if that includes certificates of deposit (CDs) but you know, just any thoughts on the ability to further lower funding costs from here if rates and then I heard you mention the margin will be up. There’s a lot of moving parts in that was just hoping if you could give us a little more color on the magnitude that you’re expecting for two or three.
Sunny Davis (Chief Treasury Officer)
Sure. This is Sunny. So yes, the 237 did include CDs and we do feel like we can save some interest expense on these CDs maybe 10 basis points and that may be conservative. During Q1 we had some local competition pretty heavily for CDs short term CDs paying well over 4% and that has ended. So we did see some exit of deposits related to that but it’s over and so yeah, at least 10 basis points, maybe more. You know we picked up what, 20 or 21 linked quarter so. And we’ve also looked at some exception pricing. We’ve made a few adjustments there even though Fed has held rates steady. But I mean those, those are minor.
Brett Rabitin
Okay, great. Appreciate all the caller.
OPERATOR
Your next question comes from Steven Scouten with Piper Sandler please go ahead.
Steven Scouten
Thanks, appreciate it. I guess maybe sticking on that NIM conversation, can you quantify what the expected benefit is in the second quarter on the basis point level from the, from the sub debt and then kind of what you think you could see from just asset repricing and the CD benefits.
Sunny Davis (Chief Treasury Officer)
So, so let’s see on the sub debt for the three month quarter it was 741. So expect to see, I mean obviously the balance is going to be much smaller for the. Well it’s going to be about 147 million for the average in the second quarter and it’ll be just over 7% with the amortization of the discount. So I haven’t calculated what I expect that to be but that $741,000 that you see for the first quarter is going to come down into the low sevens that roughly $147 million balance.
Steven Scouten
Okay, that’s really helpful, thank you. And then just maybe on the expense front I think you said was it 40 and a half million kind of per quarter which probably haven’t done the math yet. Still keeps you in that 7% range I imagine. Would you expect that that would allow you to deliver year over year operating leverage at this point in time and is that kind of I guess the minimum goal for you all as you think about the progress for the year?
Julie Schamburger
Yes, I mean I believe that we’re going to be at the 7% hopefully under but I don’t think, I don’t expect us to go over that 7%. It was just a couple of these larger items were kind of front loaded into the first quarter by the nature of the timing of the event. So the 40.5 may be a little heavy for second quarter but I think on average that’s probably where we’re going to end up. And I’m still at this point expecting the 7% annually. Does that help?
Steven Scouten
Yeah, I guess from an operating leverage perspective, just as we think about maybe the efficiency ratio and how that all comes together, would you expect that on a year over year basis to decline for the full year?
Julie Schamburger
26 I expect some improvement in the efficiency ratio in the second quarter for sure. The 791 was excluded in the calculation of the efficiency ratio as we’ve always excluded like a one time loss on redemption. But like for example the 420 that I mentioned was not excluded appropriately not. And so you know like that will not occur again in the second, third and fourth quarter. And so I expect an improvement in the efficiency ratio for the second quarter.
Steven Scouten
Okay, thanks for the color, guys. Appreciate it.
OPERATOR
Your next question comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose
Hey, good morning, everyone. Thanks for taking my questions. Just going to the capital standpoint, you know, ratio is still really good. Notice you guys didn’t buy back any stock in the quarter. I assume some of that was related to, you know, maybe just the redemption of the sub debt and some of the other actions in terms of buying securities, things like that. But any sort of outlook for what we might want to expect for repurchases as we move forward.
Keith Donahoe (President and CEO)
Yeah, we’ll continue to be opportunistic in that regard. You know, our stock is doing pretty well right now. So historically, when we’ve gone in and repurchased shares, it’s. It’s usually when we’re seeing a little bit of some downward pressure. But, you know, from a capital deployment standpoint, you know, we are, you know, there’s kind of a close first and second opportunity. You know, M and A is, is definitely part of our strategy. Stock buyback is there as a close second, but we’re also organically growing. And so we’re. We’re being judicious and we’ll continue to deploy capital where we think we’re going to get the. The fairest return.
Michael Rose
All right, helpful. Maybe just switching gears to fees. You know, nice, nice step up this quarter. You know, still some good momentum in the trust business, which I know you guys have invested in. Just wanted to see if there’s any kind of updated expectations from, you know, kind of last quarter and then if there was anything in the other expense line, because that was up, you know, both year over year and sequentially. Thanks.
Keith Donahoe (President and CEO)
Yeah. On the, on the trustees, you know, I’m really excited. I think we all are very excited that we were able to pick up an individual in the Fort Worth market that has a tremendous amount of experience and a network that I think we will benefit from. I can’t guarantee you we’re going to see that lift this year, but it wouldn’t surprise me to get a little bit of a lift throughout the rest of the year. She’s just getting her feet underneath her, but I’m really excited about it and look forward to strong growth in the Fort Worth market. I think we also picked up some fees from swap income.
Julie Schamburger
I mean, our trustees and our brokerage services were both up slightly from fourth quarter, but significantly over the first quarter of 2025. You mentioned year over year. So those were both. We saw a really nice increase year over year in those two categories as well as the swap fee income as mentioned earlier was up a good bit.
Keith Donahoe (President and CEO)
That’s something that we, that’s intentional. We really made it an intentional approach to continue to generate swap income. Granted that is somewhat market driven so but we every relationship manager is with the appropriate customer. They are talking to them about swaps. We are as Sonny mentioned, I think 38% is what our loan book is. That’s fixed on our balance sheet. That’s a significant decline over the last two years. And that that was intentional because we wanted to get to a point that we could manage our nim a little bit better. Granted you’re going to have two sides of the equation working at the same time from a funding cost and from a lending perspective. But we’re becoming more disciplined in that.
Michael Rose
All right, very helpful. Step back. Thanks for taking my questions.
OPERATOR
Your next question comes from Woody Le with kbw. Please go ahead.
Woody Le
Hey, thanks for taking my questions. Wanted to start on credit and it was, it was great to see NPAs improve quarter over quarter with that restructured loan paying off. You did mention there were a couple downgrades in multifamily books. So just given some of the moving pieces. Was just curious on Yalls perspective on sort of the local multifamily market and how it’s performing. And is it certain markets that are showing weakness? Is it individual projects? Would just love your thoughts there.
Keith Donahoe (President and CEO)
Yeah, so it is to give you a little bit of color on that. So the four multifamily projects that we move down or downgraded, two are in the Houston market, one’s in the Dallas Fort Worth market and one is in the Austin market. So it’s. I don’t think we are. I know we’re not, we’re not unique. Any Texas based lender that’s been doing multifamily construction and term loans have seen a weakness. I’m not concerned about these. And to give you a little bit of color, they average about $33 million each. They We’ve gotten new appraisals on three of the four assets and we are sub 60% loan to value on those. The real issue is that there’s a across the state in the metropolitan markets there’s been a ton of supply. I know that’s nothing new to everybody listening but we continue to see concessions offered from a rental rate standpoint. The good news is in several of the markets we do believe that the occupancy or really the vacancy has peaked. And so it’s a matter of time for these assets to stabilize. We do expect one of these, we expect will get refinanced by a debt fund sometime before the end of the second quarter. That’s the plan. They actually have a written term sheet. We also anticipate one of our borrowers is posting. Running an auction, right? Not an auction, but they’re running a process right now to sell the asset. They also have started early enough that in the event they don’t get a number they like, which we think they will, but if they don’t, they’ll still have the ability to go refinance it before the maturity. So I mean it’s a combination of things that predominantly it’s just a supply issue. Demand is still there. Each project continues to lease up, you know, quarter to quarter, month to month. They’re positive on lease up. It’s just concessions are still in place at three of these projects. If you just let the concessions burn, they are, you know, in a more traditional one over one at 110, 115 to 120 DSCR. So hopefully that provides some color. Again, not overly concerned about these, especially given the borrowers and their equity partners. These are folks that have been around the real estate world for a long time and we’ve got long term relationships with them.
Woody Le
Yeah, no, that’s really helpful. I appreciate you going into that. And I guess as you mentioned, the oversupply isn’t necessarily a new issue. How has that impacted the loan pipeline and new multifamily projects? Is there less these days or is the underwriting shifted? Just curious on your thoughts.
Keith Donahoe (President and CEO)
Yeah, you know, we haven’t modified our underwriting standards, but what that has done is it’s made it more difficult to originate new multifamily projects. I do anticipate that to change some, maybe towards the end of the year. But right now the vast majority of the new opportunities we’re seeing are coming in either the retail segment, the industrial warehouse segment. Those tend to be. There’s a lot of opportunity there and those underwrite easier. In today’s market in particular, the retail across the state of Texas is incredibly strong and that goes to a continued population in migration of people and historically a relatively limited new retail development throughout the state.
Woody Le
Got it. All right. Well, I appreciate you taking my questions.
Keith Donahoe (President and CEO)
Thank you.
OPERATOR
The next question comes from Matt, only with Stevens. Please go ahead.
Matt Only
Good morning. Most of my questions have been addressed. Want to go back to deposit growth? I think you mentioned some seasonal headwinds for deposit growth in the first quarter. What about Remainder of the year you expect the deposit growth to match the loan growth in that mid single digit number. Just any more color there?
Sunny Davis (Chief Treasury Officer)
I do expect a little bit of deposit growth but I believe we are going to be funding at least half of the loan growth with wholesale.
Matt Only
And is that comment like a full year kind of comment or is it kind of in the near term? What was the timing of that comment?
Sunny Davis (Chief Treasury Officer)
Okay, so we’re over budget right now with wholesale because of loan growth has exceeded. So I would, I expect deposits to pick up in Q2. We’re going to have some more seasonality in Q2 with one particular customer and then we are targeting to still meet our budgeted deposit growth and we’re putting in some, I would say some looking closer at our strategy to ensure that that happens.
Keith Donahoe (President and CEO)
We are spending a lot of time talking about deposit strategy growth. So it’s key to what we do obviously and we’re getting everybody focused on it.
Matt Only
Okay, appreciate that. And then on the net interest margin this past quarter, the loan yields look exceptionally strong. I know you have some nice loan repricing tailwinds that you highlighted. Anything else unusual on that loan yield number this quarter that you reported this morning?
Keith Donahoe (President and CEO)
You know we’re still seeing fierce competition on, on quality real estate assets in particular. I do think what helped us in the first quarter were a number of the closings were in areas that we tend to see a little bit higher spread. Some of that is in our home building book, some of that is in our lot development. Both of those categories tend to get a little bit higher spread. I can’t tell you that will continue throughout the rest of the year. But we do have. One of the specialties that we have is home building activity and it’s been good for us. I think we bank some of the top premier builders throughout the state and we’ll continue to do that. But generally speaking you get a little bit better pricing on that lot. Development activity is similar, although we’re being very selective on adding new lot developer projects because it’s very, very submarket specific. Today, especially in the Dallas Fort Worth market, there are still pockets that, that are really, you know, they’re pretty strong, but they’re also. You go five miles down the road and you don’t want to touch a project. So it’s very, very submarket specific. And again these are developers that have deep equity pockets and long a lot of experience.
Matt Only
Okay, thanks for that.
Keith Donahoe (President and CEO)
And then just lastly on the credit front, I think Keith, you addressed some of the questions on multifamily but we also got that pay down of that $27 million restructured credit from the previous quarters that we’ve discussed on these calls. Just any more color on the resolution of that credit? You know, the only thing that I’d call out is, you know, especially given that we’ve moved, we’ve migrated four other multifamily projects. You know, that one was in the non performing asset category but we felt pretty good about it given the individual project dynamics and the fact that it got refinanced by a life company and they actually added an additional million dollars in loan proceeds. It’s an earn out for them. But that gives you some indication of the type of projects that we typically finance. Even though that one was in the NPA bucket, it really, we were never overly concerned about it. We obviously watch them and pay attention to them. But that is, I think you will be able to expect the same type of results coming out of these other four that we have been where we downgraded that we’re not overly concerned with. Hopefully that helps.
Matt Only
Yes, that is helpful. Thanks for all the color guys.
OPERATOR
The next question comes from Brett Rabitin with Stonex Group. Please go ahead.
Brett Rabitin
Hey, just a follow up on the Texas markets and you know there’s, there’s been a couple deals in the market here in the past few quarters and just wanted to see, you know, if you’re being able to take advantage of the disruption from some of those transactions or how you viewed disruption in the Texas markets and then if M and A might be a strategy from here if you guys are out, you know, actively or aggressively looking for other partners or you know, just any thoughts on, on your growth plans and the Texas markets?
Keith Donahoe (President and CEO)
Yeah, in general there has been disruption in the market and it’s both from a customer standpoint as well as an employee base. We’ve been having conversations with folks from a employment standpoint that could be beneficial to us, some of which are from larger banks than we are. That would be helpful for us as we cross the $10 billion. So we were, we’re going to be very opportunistic with that. And in addition, you know, I didn’t highlight this that one of the CNI customers we picked up in the first quarter really came out of a displacement with another acquisition by an out of state organization. The customer had a strong desire to bank with the Texas based bank. We had been calling on them and so it made for a, a fairly easy transition for them. So yes, we’re seeing it both from an employee standpoint and also customer opportunities.
Brett Rabitin
Okay. And then just any thoughts on M and A and your appetite, if so, what you were seeing out there?
Keith Donahoe (President and CEO)
Yeah. So we’re continuing to talk and we are open to acquisitions and that’s, that has always been our strategy. I do think that today there’s a higher probability of something occurring because just the market dynamics that are out there. So that will continue to be part of our strategy.
Brett Rabitin
Okay, great. Appreciate the color.
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 CEO)
Right. Thank you, everyone, for joining us today. We appreciate your interest in Southside and We’re optimistic about 2026 and look forward to reporting second quarter earnings during our next call in July. Thank you.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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