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Southside Bancshares(SBSI) - 2021 Q4 - Annual Report
SBSISouthside Bancshares(SBSI)2022-02-25 19:49
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Financial Performance - For the year ended December 31, 2021, net income was 113.4million,comparedto113.4 million, compared to 82.2 million for 2020, representing a 38% increase[18]. - Diluted earnings per common share for the year ended December 31, 2021, was 3.47,upfrom3.47, up from 2.47 in 2020, reflecting a 40% increase[18]. - Net interest income for 2021 was 189.557million,comparedto189.557 million, compared to 187.265 million in 2020, indicating a slight increase[250]. - Net interest income for the year ended December 31, 2021 was 189.6million,anincreaseof189.6 million, an increase of 2.3 million, or 1.2%, compared to 187.3millionin2020[252].−Totalinterestincomewas187.3 million in 2020[252]. - Total interest income was 215.987 million, a decrease from 231.828millionin2020[250].−Totalinterestincomedecreasedby231.828 million in 2020[250]. - Total interest income decreased by 15.8 million, or 6.8%, to 216.0millionfortheyearendedDecember31,2021,comparedto216.0 million for the year ended December 31, 2021, compared to 231.8 million in 2020[252]. - Total interest expense decreased by 18.1million,or40.718.1 million, or 40.7%, to 26.4 million for the year ended December 31, 2021, compared to 44.6millionin2020[252].−Totalinterestexpensedecreasedby44.6 million in 2020[252]. - Total interest expense decreased by 26.4 million, or 37.2%, to 44.6millionfortheyearendedDecember31,2020,comparedto44.6 million for the year ended December 31, 2020, compared to 71.0 million in 2019[254]. - Net interest margin (FTE) increased to 3.16% for the year ended December 31, 2021, compared to 3.07% for the same period in 2020[252]. Asset and Capital Management - As of December 31, 2021, total assets were 7.26billion,totalloanswere7.26 billion, total loans were 3.65 billion, total deposits were 5.72billion,andtotalequitywas5.72 billion, and total equity was 912.2 million[18]. - Southside Bank's Common Equity Tier 1 (CET1) risk-based capital ratio is 14.17%, significantly above the regulatory minimum of 4.5%[53]. - The Tier 1 risk-based capital ratio for Southside Bank stands at 15.43%, exceeding the required minimum of 6.0%[53]. - Total risk-based capital ratio for Southside Bank is 18.15%, well above the minimum requirement of 8.0%[53]. - The leverage ratio for Southside Bank is 10.33%, surpassing the minimum of 4.0%[53]. - Southside Bank's capital ratios as of December 31, 2021, indicate strong capital adequacy compared to regulatory minimums[53]. - The company has opted to adopt a transition option for the CECL accounting standard, allowing for a three-year phase-in period for regulatory capital impacts[56]. - The company is required to submit capital restoration plans if it becomes undercapitalized, with holding companies guaranteeing these plans[81]. - Southside Bank maintains a total risk-based capital ratio of 10 percent or greater, qualifying as well-capitalized under FDICIA regulations[80]. Workforce and Diversity - Approximately 809 full-time equivalent employees were employed as of December 31, 2021, with an average employee tenure exceeding eight years[34]. - Women and ethnic minorities represented approximately 69% and 36% of the workforce, respectively, as of December 31, 2021[35]. - Approximately 45% of the workforce has remote working capabilities, with most employees having returned to office and branch locations[124]. Regulatory Environment - The company is subject to extensive federal and state regulations that could impact its operations, including lending practices and capital requirements, particularly under the Dodd-Frank Act and Basel III[176]. - The Dodd-Frank Act established a minimum DRR of 1.35% of estimated insured deposits, with the FDIC setting it at 2.0% since 2010[75]. - The Dodd-Frank Act mandates that the assessment base for calculating deposit insurance assessments be based on average consolidated total assets minus average tangible equity[75]. - The Federal Reserve's stress testing guidance applies to banking organizations with more than 10billionintotalconsolidatedassets,whichmayinfluenceindustrycapitalstandards[58].−TheVolckerRuleprohibitsSouthsideBankfromproprietarytradingandacquiringcertaininterestsinhedgeorprivateequityfunds[70].EconomicConditions−TheTexaseconomycontinuestoexperiencegrowth,witheconomicactivityreturningclosetopre−pandemiclevels[32].−AsofDecember31,2021,economicconditionsinTexashavereturnedclosetopre−pandemiclevels,withcommercialactivityimproving[122].−Thecompany’sprofitabilityissignificantlydependentoneconomicconditionsinTexas,whereitprimarilyoperates,makingitvulnerabletolocaleconomicdownturns[160].CompetitionandMarketPosition−Thecompanyfacesincreasingcompetitionfromvariousfinancialinstitutions,includingfintechcompaniesandcreditunions,whichhavesignificantcompetitiveadvantages[33].−Thecompanyfacesintensecompetitionfromlargernational,regional,andcommunitybanks,aswellasvariousfinancialinstitutions,whichmayimpactitsmarketposition[149].RiskManagement−Theeffectivenessofthecompany′sriskmanagementprocessesiscritical,asfailurescouldleadtounexpectedlosses[155].−Thecompanyreliesonanalyticalandforecastingmodelsforriskmanagement,whichmaynotalwaysbeaccurate,especiallyduringmarketstress[152].−Thecompanyissubjecttocreditqualityrisks,withpotentiallossesfromborrowersfailingtorepayloans,particularlyduringeconomicdownturns[129].−Theallowanceforloanlossesisbasedonmanagement′sestimatesandmaybeinsufficient,particularlyinlightofeconomicconditionsandpotentialborrowerdistressduetoCOVID−19[153].COVID−19Impact−ThecompanymodifiedbusinesspracticesinresponsetoCOVID−19,includingclosingtraditionallobbiesandimplementingbusinesscontinuityplans[124].−TheemergenceofnewvariantsofCOVID−19posesrisksoffurthereconomicdisruptionsandpotentialreimplementationofbusinessrestrictions[122].−ThecompanyhasmodifiedbusinesspracticesduetoCOVID−19,withaportionofemployeesworkingremotely,whichintroducesadditionaloperationalandcybersecurityrisks[135].DividendPolicy−SouthsideBank′sdividendpolicyistopaydividendsconsistentwithmaintainingliquidityandpreservingapplicablecapitalratios,subjecttoboarddiscretion[89].−Thecompanymayreduceorceasetopaycommonstockdividendsinthefuture,whichcouldadverselyaffectthemarketpriceofitscommonstock[146].−SouthsideBankissubjecttorestrictionsoncapitaldistributionsifitfailstoremainadequatelycapitalized,includinglimitationsondividendsandmanagementfees[81].LoanPortfolioandCollateral−Approximately74.010 billion in total consolidated assets, which may influence industry capital standards[58]. - The Volcker Rule prohibits Southside Bank from proprietary trading and acquiring certain interests in hedge or private equity funds[70]. Economic Conditions - The Texas economy continues to experience growth, with economic activity returning close to pre-pandemic levels[32]. - As of December 31, 2021, economic conditions in Texas have returned close to pre-pandemic levels, with commercial activity improving[122]. - The company’s profitability is significantly dependent on economic conditions in Texas, where it primarily operates, making it vulnerable to local economic downturns[160]. Competition and Market Position - The company faces increasing competition from various financial institutions, including fintech companies and credit unions, which have significant competitive advantages[33]. - The company faces intense competition from larger national, regional, and community banks, as well as various financial institutions, which may impact its market position[149]. Risk Management - The effectiveness of the company's risk management processes is critical, as failures could lead to unexpected losses[155]. - The company relies on analytical and forecasting models for risk management, which may not always be accurate, especially during market stress[152]. - The company is subject to credit quality risks, with potential losses from borrowers failing to repay loans, particularly during economic downturns[129]. - The allowance for loan losses is based on management's estimates and may be insufficient, particularly in light of economic conditions and potential borrower distress due to COVID-19[153]. COVID-19 Impact - The company modified business practices in response to COVID-19, including closing traditional lobbies and implementing business continuity plans[124]. - The emergence of new variants of COVID-19 poses risks of further economic disruptions and potential reimplementation of business restrictions[122]. - The company has modified business practices due to COVID-19, with a portion of employees working remotely, which introduces additional operational and cybersecurity risks[135]. Dividend Policy - Southside Bank's dividend policy is to pay dividends consistent with maintaining liquidity and preserving applicable capital ratios, subject to board discretion[89]. - The company may reduce or cease to pay common stock dividends in the future, which could adversely affect the market price of its common stock[146]. - Southside Bank is subject to restrictions on capital distributions if it fails to remain adequately capitalized, including limitations on dividends and management fees[81]. Loan Portfolio and Collateral - Approximately 74.0% of the company's loans have real estate as a primary or secondary component of collateral as of December 31, 2021[130]. - Energy loans represented approximately 1.91% of the company's loan portfolio as of December 31, 2021, with potential risks from declining crude oil prices impacting loan demand and portfolio performance[174]. Securities and Investments - The company purchased 540.5 million in highly rated primarily Texas municipal securities during 2021[242]. - A net realized gain of 3.9millionwasachievedfromsalesofAFSsecuritiesfortheyearendedDecember31,2021[242].−Thecompany′ssecuritiesportfolioincreasedfrom3.9 million was achieved from sales of AFS securities for the year ended December 31, 2021[242]. - The company's securities portfolio increased from 2.70 billion at December 31, 2020, to 2.86billionatDecember31,2021,reflectingagrowthof2.86 billion at December 31, 2021, reflecting a growth of 158.8 million or 5.9%[241]. Interest Rate Sensitivity - The company’s net interest income is significantly impacted by fluctuations in interest rates, with the Federal Reserve indicating intentions to raise rates in March 2022[251]. - Average yield on earning assets decreased to 3.58% for the year ended December 31, 2021 from 3.75% in 2020[255]. - Average yield on earning assets decreased to 3.75% for the year ended December 31, 2020 from 4.28% in 2019[256].