Southside Bancshares, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Southside Bancshares is a Texas bank holding company operating Southside Bank. This unaudited filing covers the quarter and nine months ended September 30, 2023; balance-sheet comparisons are with December 31, 2022. Amounts are in U.S. dollars.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $53.3 million | $55.5 million | $160.5 million | $155.5 million |
| Net interest margin (GAAP) | 2.85% | 3.15% | 2.95% | 3.08% |
| Provision for credit losses | $7.0 million | $1.5 million | $6.9 million | $1.2 million |
| Noninterest income | $10.8 million | $10.3 million | $33.3 million | $30.1 million |
| Noninterest expense | $35.6 million | $33.5 million | $105.4 million | $96.8 million |
| Net income | $18.4 million | $27.0 million | $69.4 million | $77.4 million |
| Diluted EPS | $0.60 | $0.84 | $2.24 | $2.39 |
- Balance sheet: Total assets were $7.97 billion, up 5.5% from year-end 2022. Loans were $4.42 billion, up 6.6%; deposits were $6.35 billion, up 2.4%. Noninterest-bearing deposits declined $240.3 million, while interest-bearing deposits rose $391.8 million.
- Cash flow: For the first nine months, operating cash flow was $136.5 million, investing cash outflow was $319.3 million, and financing cash inflow was $309.4 million. Cash and cash equivalents ended at $325.8 million, up $126.6 million from year-end 2022.
- Debt and liquidity: Other borrowings were $395.2 million and FHLB borrowings $212.8 million. Long-term subordinated notes and trust preferred debentures totaled $154.1 million. The Bank had $2.41 billion of disclosed future borrowing capacity across FHLB, Federal Reserve discount window, correspondent lines and BTFP; BTFP capacity remaining was only about $6,000. BTFP borrowings were $291.3 million at a 4.46% cost.
- Capital: Shareholders’ equity was $728.6 million, 9.1% of assets, versus $746.0 million and 9.9% at year-end. Consolidated CET1, Tier 1 and total capital ratios were 12.27%, 13.31% and 15.71%, respectively; management said the Company and Bank met regulatory capital requirements.
- Credit: Allowance for loan losses was $41.8 million, or 0.94% of loans, compared with $36.5 million, or 0.88%, at year-end. Nonperforming assets were $4.4 million, down from $10.9 million; nonaccrual loans rose to $4.3 million from $2.8 million.
- Securities and AOCI: AFS and HTM securities totaled approximately $2.64 billion. At September 30, HTM fair value was $255.8 million below amortized cost; AFS gross unrealized losses were $137.3 million. AOCI was a loss of $155.0 million.
Material changes and management commentary
- Q3 net income fell 31.5% year over year. Management attributed the decline mainly to higher credit-loss provision, lower net interest income and higher operating expense. For the nine-month period, net income declined 10.3%, despite higher net interest income and noninterest income.
- Interest income increased sharply, but higher deposit and borrowing costs more than offset the increase in Q3. Q3 total interest expense rose to $39.8 million from $11.4 million; the cost of interest-bearing deposits reached 2.58%, versus 0.70% a year earlier. Nine-month net interest income grew 3.2%, while GAAP margin declined to 2.95% from 3.08%.
- Management described Texas markets as healthy, citing job and population growth, while noting inflation, higher rates, labor shortages, supply-chain disruption and recession concerns. The filing gives no formal earnings or financial guidance. Management anticipated further rate increases during the remainder of 2023.
- Estimated uninsured deposits were 36.2% of deposits; excluding affiliate and collateralized public-fund deposits, deposits without insurance or collateral were 19.4%. Management said it increased deposit rates to retain balances and reported adequate funding, while highlighting liquidity management as a continuing focus.
- During the nine months, the Company recorded a $5.1 million gain on equity-security sales, a $5.6 million net loss on AFS securities sales, and a $951,000 BOLI death benefit. It repurchased $40.1 million of common stock during the period; subsequent to quarter-end through October 24, it repurchased another 141,480 shares at an average $28.56.
- Key stated risks include rate and yield-curve changes, deposit outflows and funding costs, liquidity conditions, credit deterioration—particularly in real estate and construction—securities fair-value declines, MBS prepayments, inflation and recession, and cyber and operational risks. Management said ordinary-course litigation is not expected to materially affect financial position, results or liquidity. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether deposit pricing and funding mix stabilize, and how they affect net interest margin and earnings.
- How much liquidity is practically available under pledged collateral and borrowing facilities, and the effect of wholesale funding costs and maturities.
- Whether loan growth—especially commercial real estate and construction—leads to worsening risk ratings, delinquencies, charge-offs or allowance needs.
- The duration and potential capital implications of unrealized securities losses, AOCI, and the Company’s ability and intent to hold securities.
- Whether repurchases and dividends remain sustainable given earnings, capital needs and the board’s discretion.