Southside Bancshares, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. Southside is a Texas-based bank holding company operating Southside Bank, with 56 branches and wealth management and trust services. Amounts below are in U.S. dollars.
Key financial results
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total assets, year-end | $7.26 billion | $7.01 billion | Up 3.6% |
| Total loans, year-end | $3.65 billion | $3.66 billion | Down 0.3%; excluding PPP loans, up 5.0% |
| Total deposits, year-end | $5.72 billion | $4.93 billion | Up 16.0% |
| Net interest income | $189.6 million | $187.3 million | Up 1.2% |
| Net interest margin, FTE | 3.16% | 3.07% | Up 9 basis points; non-GAAP |
| Net income | $113.4 million | $82.2 million | Up 38.0% |
| Diluted EPS | $3.47 | $2.47 | Up 40.5% |
| Net cash from operating activities | $156.1 million | $90.5 million | Cash flow statement |
| Shareholders’ equity, year-end | $912.2 million | $875.3 million | Up 4.2%; 12.6% of assets |
Earnings, margins and asset quality
- Net interest income rose despite interest income declining $15.8 million to $216.0 million, as interest expense fell $18.1 million to $26.4 million. Average earning-asset yield decreased to 3.58% from 3.75%; the average rate on interest-bearing liabilities fell to 0.57% from 0.89%.
- Net income growth was chiefly driven by a $17.0 million reversal of provision for credit losses in 2021, compared with a $20.2 million provision in 2020. Management attributed the change to improved economic forecasts and asset quality. The reversal materially benefited reported earnings.
- Noninterest income was $49.3 million, down 0.8%; securities-sale gains decreased to $3.9 million from $8.3 million. Noninterest expense rose 1.4% to $125.0 million, including a $1.1 million loss on redemption of subordinated notes.
- Return on average assets was 1.59% versus 1.14%; return on average equity was 12.77% versus 9.91%. The effective tax rate increased to 13.3% from 12.1%, remaining below the 21% statutory rate primarily because of tax-exempt income and bank-owned life insurance.
- Year-end nonperforming assets declined to $11.6 million, or 0.16% of assets, from $17.5 million, or 0.25%. Net charge-offs were $0.8 million, or 0.02% of average loans, compared with $1.2 million, or 0.03%.
- The allowance for loan losses fell to $35.3 million, or 0.97% of loans, from $49.0 million, or 1.34%. The allowance and provision rely on CECL forecasts and management assumptions; the auditor identified the allowance estimate as a critical audit matter.
Balance sheet, funding and capital
- Deposit growth reflected PPP disbursements, stimulus-related deposits, higher brokered deposits and public funds. Noninterest-bearing deposits were $1.64 billion. Estimated uninsured deposits were $2.49 billion, up from $2.17 billion.
- FHLB borrowings declined to $344.0 million from $832.5 million. Subordinated notes were $98.5 million, down from $197.3 million after the Company redeemed $100 million of 5.50% notes in September 2021; it recorded the related $1.1 million loss. The remaining $100 million issuance carries a 3.875% fixed rate through November 2025 and then floats.
- Cash and cash equivalents were $201.8 million, compared with $108.4 million. The Bank reported additional borrowing capacity of approximately $1.47 billion from the FHLB and $473.9 million from the Federal Reserve discount window, both subject to collateral availability and terms. Management stated it believed liquidity was adequate.
- Regulatory capital remained above well-capitalized thresholds. At year-end, consolidated CET1, total risk-based capital and leverage ratios were 14.17%, 18.15% and 10.33%; Bank-only ratios were 17.11%, 17.70% and 11.46%, respectively.
- Dividends were $1.37 per share for 2021, versus $1.30. The Company repurchased 938,484 shares for $34.1 million, at an average $36.39 per share; the authorization was completed and no plan was in place at year-end.
Material changes and management commentary
- Loans were nearly flat overall, but excluding PPP balances—which decreased $183.8 million as forgiveness payments were received—loans grew $171.2 million. Commercial real estate loans increased $302.4 million, while construction and 1–4 family residential loans decreased.
- Securities increased to approximately $2.86 billion. The portfolio shifted toward municipal, corporate and Treasury securities and away from mortgage-backed securities. AFS securities had a $108.7 million net unrealized gain at year-end; changes in rates can affect fair value and accumulated other comprehensive income.
- Management reported Texas economic activity had returned close to pre-pandemic levels, while noting labor shortages and supply-chain disruptions. It originated $112.3 million of second-round PPP loans in 2021; $31.0 million remained outstanding at year-end. No loans remained on payment deferral.
- Management said the Federal Reserve had indicated its intention to raise rates in March 2022. The filing provides no specific earnings, revenue, margin or loan-growth guidance.
- Three branches were closed during 2021, including two near other Southside branches; the company cited customer migration toward digital banking. It also continued evaluating acquisition opportunities.
Risks, contingencies and unusual items
- Interest-rate and yield-curve changes may alter net interest income, funding costs, securities values and mortgage-backed securities prepayments. Management’s 12-month model projected net interest income changes of +2.40% for a 100-basis-point rate increase, +4.78% for a 200-basis-point increase and −1.68% for a 50-basis-point decrease; these are model estimates, not guidance.
- Credit exposure is concentrated geographically in Texas and by collateral in real estate: approximately 74% of loans had real estate as a primary or secondary collateral component. Energy loans were $69.7 million, or 1.91% of loans, at year-end.
- COVID-19 and variants, inflation, economic conditions, real estate values, oil prices, cybersecurity and third-party systems, competition, regulation, liquidity, and the LIBOR-to-alternative-rate transition remain identified risks. The Company had LIBOR-linked loans, derivatives, borrowings and other instruments and was implementing transition measures.
- Commitments to extend credit totaled $1.05 billion and standby letters of credit $12.7 million. Management considered ordinary-course litigation immaterial; no specific material litigation liability was identified in the supplied filing text.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The principal audit focus was management’s judgment in assigning economic-scenario probabilities to the allowance for loan losses.
Important facts for investors to verify
- How sustainable 2021 earnings are without the $17.0 million credit-loss provision reversal, and how CECL assumptions and allowance coverage evolve.
- Deposit composition and retention, particularly the $2.49 billion estimate of uninsured deposits and growth in brokered non-maturity deposits.
- Exposure to commercial real estate and Texas markets, including collateral quality, criticized/classified loans and sector concentrations.
- Effects of interest-rate changes on net interest income, deposit pricing, AFS securities values, capital and mortgage-backed securities prepayments.
- Remaining debt costs and maturities, liquidity capacity and conditions on secured borrowing availability; also the execution and effects of the LIBOR transition.
- Whether dividends or repurchases resume under future board authorization and regulatory, earnings and capital constraints.