Southside Bancshares(US:SBSI)2025-07-25 21:18PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes Consolidated Balance Sheets As of June 30, 2025, total assets were $8.34 billion, a decrease from $8.52 billion at December 31, 2024, primarily driven by reductions in securities and loans Consolidated Balance Sheets (in thousands) | | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $8,339,966 | $8,517,448 | | Net loans | $4,557,512 | $4,616,713 | | Total securities (AFS & HTM) | $2,730,030 | $2,813,128 | | Total cash and cash equivalents | $390,095 | $426,161 | | Total Liabilities | $7,532,766 | $7,705,506 | | Total deposits | $6,631,964 | $6,654,248 | | FHLB borrowings | $511,526 | $731,909 | | Total Shareholders' Equity | $807,200 | $811,942 | Consolidated Statements of Income Net income for Q2 2025 was $21.8 million, a decrease from $24.7 million in Q2 2024, primarily due to lower net interest income and higher expenses Consolidated Statements of Income Highlights (in thousands, except per share data) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Net Interest Income | $54,266 | $53,608 | $108,118 | $106,956 | | Provision for (reversal of) credit losses | $622 | $(485) | $1,380 | $(427) | | Total Noninterest Income | $12,145 | $11,557 | $22,368 | $21,281 | | Total Noninterest Expense | $39,257 | $35,765 | $76,346 | $72,646 | | Net Income | $21,813 | $24,673 | $43,320 | $46,184 | | Earnings per share – diluted | $0.72 | $0.81 | $1.42 | $1.52 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q2 2025 was $12.1 million, down from $24.6 million in Q2 2024, driven by a net loss in other comprehensive income Consolidated Statements of Comprehensive Income (Loss) (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Net Income | $21,813 | $24,673 | $43,320 | $46,184 | | Other comprehensive income (loss), net of tax | $(9,671) | $(95) | $(16,587) | $2,508 | | Comprehensive income (loss) | $12,142 | $24,578 | $26,733 | $48,692 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased to $807.2 million at June 30, 2025, primarily due to dividends, treasury stock purchases, and other comprehensive loss - Key drivers for the change in shareholders' equity during the first six months of 2025 include net income of $43.3 million, offset by other comprehensive loss of $16.6 million, cash dividends of $21.8 million, and common stock repurchases of $11.9 million15152 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $29.9 million, while net cash used in financing activities was $251.6 million Six Months Ended June 30, 2025 Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $29,885 | $74,777 | | Net cash provided by (used in) investing activities | $185,602 | $(146,431) | | Net cash provided by (used in) financing activities | $(251,553) | $(36,860) | | Net increase (decrease) in cash and cash equivalents | $(36,066) | $(108,514) | Notes to Consolidated Financial Statements This section provides detailed explanations of accounting policies and financial data, including securities, loans, borrowings, and derivatives - The company's securities portfolio (AFS and HTM) totaled $2.73 billion at June 30, 2025, with unrealized losses of $68.7 million in the AFS portfolio and $192.1 million in the HTM portfolio, primarily due to changes in interest rates30 - Total loans decreased to $4.60 billion at June 30, 2025. Nonperforming assets increased significantly to $32.9 million (0.39% of total assets) from $3.6 million at year-end 2024, mainly due to a $27.5 million commercial real estate loan being restructured4659149 - The company utilizes interest rate swaps to manage interest rate risk. As of June 30, 2025, it had $810.0 million in cash flow hedges and $631.1 million in fair value hedges by notional amount828490 - Off-balance-sheet commitments, primarily commitments to extend credit, totaled $821.0 million at June 30, 2025, a decrease from $881.7 million at year-end 2024121 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results, highlighting decreased net income due to higher expenses and credit loss provisions Overview Net income for Q2 2025 was $21.8 million, down 11.6% from Q2 2024, primarily due to higher noninterest expense and credit loss provisions Key Performance Indicators | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (millions) | $21.8 | $24.7 | $43.3 | $46.2 | | Diluted EPS | $0.72 | $0.81 | $1.42 | $1.52 | - Total assets decreased by $177.5 million (2.1%) to $8.34 billion at June 30, 2025, from December 31, 2024147 - Nonperforming assets increased significantly to $32.9 million (0.39% of total assets) at June 30, 2025, up from $3.6 million at year-end, primarily due to a single $27.5 million commercial real estate loan restructure149 Balance Sheet Strategy The company actively manages its balance sheet, maintaining significant liquidity and utilizing wholesale funding and derivatives - The company has substantial available liquidity, including $1.87 billion from FHLB and $383.6 million from the FRDW as of June 30, 2025155 - Cash flow hedges with a notional value of $810 million were in place to hedge brokered deposits and FHLB advances, mitigating interest rate risk156 - During H1 2025, the company sold $119.6 million of MBS, resulting in a net realized loss of $554,000, and purchased $171.3 million in new MBS as part of its portfolio management163 Results of Operations Net interest income for Q2 2025 increased 1.2% YoY to $54.3 million, with the net interest margin expanding to 2.95% Net Interest Margin (FTE) Comparison | Period | Net Interest Margin (FTE) | Net Interest Spread (FTE) | | :--- | :--- | :--- | | Q2 2025 | 2.95% | 2.27% | | Q2 2024 | 2.87% | 2.13% | | H1 2025 | 2.91% | 2.23% | | H1 2024 | 2.87% | 2.15% | - Noninterest expense for Q2 2025 increased by $3.5 million (9.8%) YoY, primarily due to a $1.2 million one-time charge for a branch demolition and increased professional fees192201 - The effective tax rate for Q2 2025 was 17.8%, slightly higher than 17.4% in Q2 2024, mainly due to increased state income tax expense202 Loan Portfolio and Asset Quality Total loans decreased 1.3% to $4.60 billion at June 30, 2025, while nonperforming assets surged to $32.9 million due to a commercial real estate loan restructure Loan Composition (in thousands) | Loan Type | June 30, 2025 | Dec 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Construction | $470,380 | $537,827 | (12.5)% | | Commercial Real Estate | $2,606,072 | $2,579,735 | 1.0% | | Commercial loans | $380,612 | $363,167 | 4.8% | | Municipal loans | $363,746 | $390,968 | (7.0)% | | Total loans | $4,601,933 | $4,661,597 | (1.3)% | Asset Quality Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.39% | 0.04% | | Allowance for loan losses to total loans | 0.97% | 0.96% | - The allowance for loan losses decreased slightly to $44.4 million at June 30, 2025, from $44.9 million at December 31, 2024216 Capital Resources and Liquidity The company maintains a strong and well-capitalized position with robust liquidity and significant borrowing capacity Regulatory Capital Ratios (Consolidated) | Ratio | June 30, 2025 | For Capital Adequacy | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 13.36% | 4.50% | | Tier 1 Capital | 14.41% | 6.00% | | Total Capital | 16.91% | 8.00% | | Tier 1 Leverage | 10.03% | 4.00% | - Shareholders' equity decreased by $4.7 million in H1 2025, as net income of $43.3 million was offset by $21.8 million in dividends, $16.6 million in OCI loss, and $11.9 million in share repurchases219 - The company maintains significant liquidity sources, including approximately $1.87 billion in additional funding capacity from the FHLB and $383.6 million from the FRDW as of June 30, 2025229 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed through net income simulation and MVPE modeling, indicating an asset-sensitive position Anticipated Impact on Net Interest Income Over Next 12 Months | Rate Scenario | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | +200 bps | +5.34% | +7.13% | | +100 bps | +2.69% | +3.78% | | -50 bps | (0.65)% | (3.00)% | | -100 bps | (1.06)% | (4.85)% | | -200 bps | (1.51)% | (6.95)% | - The company's interest rate risk profile shows it is asset-sensitive, meaning net interest income is expected to rise in a rising rate environment and fall in a declining rate environment. The sensitivity to rate changes has decreased compared to the prior year238239 Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the reporting period242 - No material changes were made to internal control over financial reporting during the quarter ended June 30, 2025243 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various litigation in the normal course of business, with no expected material effect on its financial position - Management does not expect ongoing litigation to have a material effect on the company's financial condition244 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes in risk factors were reported since the 2024 Form 10-K245 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 424,435 shares of common stock at an average price of $28.13 per share under its repurchase plan Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 196,419 | $27.08 | | May 2025 | — | — | | June 2025 | 228,016 | $29.04 | | Total | 424,435 | $28.13 | - The stock repurchase plan was approved on July 20, 2023, authorizing the repurchase of up to 1.0 million shares246 Other Information No directors or executive officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q2 2025 - No directors or executive officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q2 2025250 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and interactive data files