Southside Bancshares(SBSI) - 2024 Q3 - Quarterly Results

Financial Highlights Third Quarter 2024 Performance Summary Southside Bancshares reported a net income of $20.5 million for the third quarter of 2024, an 11.2% increase year-over-year, with diluted earnings per share rising to $0.68. The performance was supported by a linked-quarter increase in net interest income and margin, alongside continued strong asset quality with nonperforming assets at just 0.09% of total assets Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Change (YoY) | | :--- | :--- | :--- | | Net Income | $20.5 million | +11.2% | | Diluted EPS | $0.68 | +13.3% | | Annualized ROA | 0.98% | +5 bps | | Annualized Return on Tangible Common Equity (Non-GAAP) | 13.69% | +52 bps | | Nonperforming Assets to Total Assets | 0.09% | +4 bps | - Management highlighted a linked-quarter increase of $1.86 million in net interest income and an 8 basis point increase in net interest margin to 2.95%[2] - During the quarter, the company sold $28 million of lower-yielding municipal securities, incurring a $1.9 million loss, and reinvested the proceeds into higher-yielding agency mortgage-backed securities[2] Operating Results Operating Results for the Three Months Ended September 30, 2024 For the third quarter of 2024, net income rose to $20.5 million from $18.4 million in Q3 2023, driven by a $2.2 million increase in net interest income and a lower provision for credit losses. This was partially offset by a $2.7 million decrease in noninterest income, mainly due to a net loss on the sale of AFS securities and an impairment charge. The efficiency ratio improved both year-over-year and on a linked-quarter basis Q3 2024 vs. Q3 2023 Performance | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $20.5 million | $18.4 million | +11.2% | | Diluted EPS | $0.68 | $0.60 | +$0.08 | | Net Interest Income | $55.5 million | $53.3 million | +4.1% | | Noninterest Income | $8.2 million | $10.8 million | -24.6% | | Noninterest Expense | $36.3 million | $35.6 million | +2.2% | - Net interest margin (tax-equivalent) was 2.95%, down from 3.02% in Q3 2023 but up from 2.87% in Q2 2024[3] - Noninterest income was negatively impacted by a net loss on the sale of AFS securities and a $868,000 impairment charge related to a subsequent sale of municipal securities on October 1[3][4] - The effective tax rate increased to 17.6% from 14.5% in Q3 2024, primarily due to a decrease in tax-exempt income as a percentage of pre-tax income[4] Operating Results for the Nine Months Ended September 30, 2024 For the first nine months of 2024, net income decreased by 3.8% to $66.7 million compared to the same period in 2023. The decline was primarily due to lower noninterest income and higher noninterest and income tax expenses, which more than offset a modest increase in net interest income and a lower provision for credit losses Nine Months 2024 vs. 2023 Performance | Metric | Nine Months 2024 | Nine Months 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $66.7 million | $69.4 million | -3.8% | | Diluted EPS | $2.20 | $2.24 | -1.8% | | Net Interest Income | $162.4 million | $160.5 million | +1.2% | | Noninterest Income | $29.5 million | $33.3 million | -11.6% | | Noninterest Expense | $109.0 million | $105.4 million | +3.4% | - The tax-equivalent net interest margin for the nine-month period decreased to 2.90% from 3.13% in the prior year period[5] - The efficiency ratio (tax-equivalent) deteriorated to 53.35% for the nine months ended September 30, 2024, from 51.44% for the same period in 2023[5] Financial Condition Balance Sheet Analysis As of September 30, 2024, total assets stood at $8.36 billion, showing growth from both year-end and the prior year. Loans increased 3.6% year-over-year to $4.58 billion, though they experienced a slight linked-quarter decline. Total deposits grew 1.4% year-over-year to $6.44 billion. The cost of total deposits saw a minor linked-quarter decrease to 2.38% Key Balance Sheet Items | Item | Sep 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $8.36 billion | $8.28 billion | $7.97 billion | | Total Loans | $4.58 billion | $4.52 billion | $4.42 billion | | Total Deposits | $6.44 billion | $6.55 billion | $6.35 billion | - Linked quarter, loans decreased by $11.3 million (0.2%), primarily driven by declines in commercial real estate and municipal loans[7] - Estimated uninsured deposits were 35.9%. Excluding collateralized public funds and affiliate deposits, the estimated uninsured and uncollateralized portion was 19.2%[8] - The cost of total deposits for Q3 2024 was 2.38%, a one basis point decrease from the prior quarter. The cost of interest-bearing deposits remained stable at 3.01% linked-quarter[8] Capital Resources and Liquidity The company's capital ratios and liquidity position remain solid. No common stock was repurchased during the third quarter under the existing plan. As of September 30, 2024, Southside had $2.23 billion in total available contingent liquidity - No shares were purchased during Q3 2024 under the Stock Repurchase Plan[9] - Total available contingent liquidity, net of outstanding borrowings, was $2.23 billion, sourced from FHLB advances, the Federal Reserve Discount Window, and correspondent bank lines of credit[9] Asset Quality Asset quality remains strong, with nonperforming assets at a low 0.09% of total assets, despite a slight increase from prior periods. The allowance for loan losses was increased to 0.97% of total loans, reflecting heightened economic concerns for office and multifamily markets. The provision for credit losses for loans was $2.3 million for the quarter Nonperforming Assets (NPA) Trend | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | | NPA / Total Assets | 0.09% | 0.08% | 0.05% | | Total NPAs | $7.7 million | $6.9 million | $4.4 million | - The allowance for loan losses increased to $44.3 million, or 0.97% of total loans, up from 0.92% in the prior quarter, mainly due to economic concerns in the CECL model for office and multifamily markets[10] Quarterly Credit Loss Provision and Charge-offs | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses (Loans) | $2.3 million | ($0.9 million) | $6.3 million | | Net Charge-offs | $0.4 million | $0.3 million | $0.9 million | Shareholder Information Dividend Southside Bancshares, Inc. declared and paid a third-quarter cash dividend of $0.36 per common share - A cash dividend of $0.36 per share was declared on August 8, 2024, and paid on September 5, 2024[11] Conference Call The company will host a conference call on October 24, 2024, at 11:00 a.m. CDT to discuss its third-quarter financial results. A webcast and replay will be available on the company's investor relations website - Management will host a conference call to discuss Q3 2024 results on Thursday, October 24, 2024, at 11:00 a.m. CDT[12] Other Information Non-GAAP Financial Measures The company utilizes several non-GAAP financial measures, such as fully taxable-equivalent (FTE) net interest income, net interest margin, and efficiency ratio, to supplement its GAAP-based financial statements. Management believes these measures provide a better basis for performance evaluation and peer comparison by adjusting for the tax-favored status of certain income - Key non-GAAP measures include net interest income (FTE), net interest margin (FTE), net interest spread (FTE), and efficiency ratio (FTE)[13] - These measures adjust tax-exempt interest income to a tax-equivalent basis using a 21% federal income tax rate to enhance comparability between taxable and tax-exempt sources of income[13][14] About Southside Bancshares, Inc. Southside Bancshares, Inc. is a bank holding company headquartered in Texas with approximately $8.36 billion in assets as of September 30, 2024. Its subsidiary, Southside Bank, operates 54 branches within the state - As of September 30, 2024, the company has approximately $8.36 billion in assets and operates 54 branches in Texas through its subsidiary, Southside Bank[18] Forward-Looking Statements This section provides a standard safe harbor warning that the press release contains forward-looking statements subject to significant risks and uncertainties. Key factors that could cause actual results to differ include the impact of higher inflation, interest rate fluctuations, and general economic or recessionary concerns - The company identifies significant risk factors that could affect future performance, including ongoing high inflation, interest rate fluctuations, economic concerns, and their potential impact on deposits and loan originations[19] Financial Statements and Supplementary Data Consolidated Financial Summary (Balance Sheet) Presents the company's consolidated balance sheet as of September 30, 2024, with comparative data for the preceding quarters and the prior year, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheet (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Net Loans | $4,533,772 | $4,481,836 | | Total Securities | $2,696,840 | $2,603,347 | | Total Assets | $8,362,263 | $8,284,914 | | Liabilities & Equity | | | | Total Deposits | $6,435,702 | $6,549,681 | | Total Liabilities | $7,557,009 | $7,511,626 | | Shareholders' Equity | $805,254 | $773,288 | | Total Liabilities & Equity | $8,362,263 | $8,284,914 | Consolidated Financial Highlights (Income Statement) Provides a detailed quarterly consolidated income statement, including breakdowns of interest and noninterest income and expenses, leading to net income. It also includes key per-share data and performance ratios Consolidated Income Statement (in thousands) | Account | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $55,464 | $53,608 | $53,273 | | Provision for Credit Losses | $2,389 | ($485) | $6,987 | | Total Noninterest Income | $8,171 | $11,557 | $10,836 | | Total Noninterest Expense | $36,332 | $35,765 | $35,553 | | Net Income | $20,524 | $24,673 | $18,449 | | Diluted EPS | $0.68 | $0.81 | $0.60 | Asset Quality and Capital Ratios This section details the components of nonperforming assets and key asset quality ratios. It also presents various regulatory capital ratios, demonstrating the company's capital adequacy Asset Quality Ratios | Ratio | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Nonperforming Assets / Total Assets | 0.09% | 0.08% | 0.05% | | Allowance for Loan Losses / Total Loans | 0.97% | 0.92% | 0.94% | Capital Ratios | Ratio | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 13.07% | 12.27% | | Total Risk-Based Capital | 16.59% | 15.71% | | Tier 1 Leverage Capital | 9.61% | 9.61% | Loan Portfolio and Allowance for Credit Losses Offers a breakdown of the loan portfolio by major categories such as real estate, commercial, and municipal loans. It also includes a detailed reconciliation of the allowance for credit losses for both loans and off-balance-sheet exposures Loan Portfolio Composition (in thousands) | Loan Category | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Commercial Real Estate | $2,422,612 | $2,117,306 | | Construction | $585,817 | $720,515 | | 1-4 Family Residential | $755,406 | $689,492 | | Commercial Loans | $358,854 | $385,816 | | Total Loans | $4,578,048 | $4,420,633 | Allowance for Loan Losses Reconciliation - Q3 2024 (in thousands) | Item | Amount | | :--- | :--- | | Balance at beginning of period (Jun 30, 2024) | $42,407 | | Net Charge-offs | ($408) | | Provision for loan losses | $2,277 | | Balance at end of period (Sep 30, 2024) | $44,276 | Year-to-Date Financial Highlights Summarizes the company's financial performance for the nine-month period ending September 30, 2024, comparing key income statement items, per-share data, and performance ratios against the same period in 2023 Nine Months Ended Sep 30, Financial Summary (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Net Interest Income | $162,420 | $160,542 | | Provision for Credit Losses | $1,962 | $6,873 | | Total Noninterest Income | $29,452 | $33,333 | | Total Noninterest Expense | $108,978 | $105,395 | | Net Income | $66,708 | $69,376 | | Diluted EPS | $2.20 | $2.24 | Average Balances and Yields Provides detailed tables showing the average balances for all earning assets and interest-bearing liabilities, along with their respective average yields and rates on a fully taxable-equivalent (FTE) basis for quarterly and year-to-date periods Q3 2024 Average Balances and Rates (FTE) | Metric | Value | | :--- | :--- | | Average Earning Assets | $7.82 billion | | Average Yield on Earning Assets | 5.51% | | Average Interest Bearing Liabilities | $6.09 billion | | Average Rate on Interest Bearing Liabilities | 3.28% | | Net Interest Margin (FTE) | 2.95% | | Net Interest Spread (FTE) | 2.23% | Non-GAAP Reconciliation This section provides the necessary reconciliations of reported GAAP financial measures to the non-GAAP measures discussed in the report. It includes reconciliations for return on average tangible common equity, tangible book value per share, and the FTE efficiency ratio, clarifying the adjustments made Reconciliation of Net Income to Adjusted Net Income (for ROATCE) - Q3 2024 (in thousands) | Item | Amount | | :--- | :--- | | Net Income (GAAP) | $20,524 | | After-tax amortization expense | $220 | | Adjusted Net Income (Non-GAAP) | $20,744 | Reconciliation of Net Interest Income to FTE Basis - Q3 2024 (in thousands) | Item | Amount | | :--- | :--- | | Net Interest Income (GAAP) | $55,464 | | Tax-equivalent adjustments | $2,620 | | Net Interest Income (FTE, Non-GAAP) | $58,084 |