Southside Bancshares, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Southside Bancshares is a Texas bank holding company operating through Southside Bank. This unaudited filing covers the three months ended March 31, 2023; balance-sheet comparisons are primarily with December 31, 2022, and operating results with Q1 2022.
Key financial results and position
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Net income | $26.0 million | Up 4.2% from $25.0 million in Q1 2022 |
| Diluted EPS | $0.83 | Up from $0.77 |
| Net interest income | $53.4 million | Up 9.1% from $48.9 million |
| Net interest margin | 3.02% GAAP; 3.21% FTE | 3.03% and 3.22%, respectively, in Q1 2022 |
| Noninterest income / expense | $12.0 million / $34.8 million | Income up 12.2%; expense up 11.7% |
| Total assets | $7.79 billion | Up 3.1% from year-end 2022 |
| Loans / deposits | $4.15 billion / $5.84 billion | Loans up 0.1%; deposits down 5.8% from year-end |
| Allowance for loan losses | $36.3 million; 0.87% of loans | $36.5 million; 0.88% at year-end |
| Shareholders’ equity | $751.0 million; 9.6% of assets | $746.0 million; 9.9% at year-end |
| Cash and cash equivalents | $310.5 million | $199.3 million at year-end |
Q1 operating cash flow was $23.6 million, compared with $85.4 million in Q1 2022. Investing activities used $111.9 million and financing activities provided $199.5 million; the net increase in cash was $111.2 million.
Regulatory capital ratios remained above stated well-capitalized thresholds. At March 31, consolidated CET1 was 12.73%, Tier 1 capital 13.81%, total capital 16.28%, and Tier 1 leverage 9.83%. The Bank’s respective ratios were 15.30%, 15.30%, 15.94%, and 10.89%.
Material changes versus comparable periods
- Interest income rose 50.1% to $80.8 million as asset yields and average earning assets increased. Interest expense rose 453.6% to $27.5 million, largely reflecting higher deposit costs and increased borrowings; net interest margin was slightly lower year over year.
- Deposits fell $359.8 million from year-end, including a $191.8 million decline in brokered deposits. Management said some swap funding shifted from brokered deposits to FHLB advances and other borrowings to reduce funding costs. FHLB borrowings rose to $333.2 million; other borrowings reached $625.6 million.
- Loans were broadly stable quarter over quarter but up 9.3% year over year. Commercial real estate and construction loans increased year over year; commercial, municipal, and consumer loans declined.
- Nonperforming assets declined to $3.2 million from $10.9 million at year-end, in part because of the prospective adoption of ASU 2022-02, which changed restructuring disclosures. Nonaccrual loans were $3.2 million, or 0.08% of loans.
- AOCI improved to a loss of $133.3 million from $137.5 million at year-end, but remained negative. AFS securities had $64.4 million of gross unrealized losses and HTM securities $145.2 million at March 31.
Liquidity, outlook, risks, and unusual items
- Management reported approximately $1.88 billion of available contingent liquidity: $1.53 billion from FHLB, $282.8 million from the Federal Reserve discount window, $3.1 million from BTFP, and $62.5 million from correspondent lines. These sources are subject to availability and collateral requirements. The Bank had $350.0 million outstanding at the discount window and $198.4 million under BTFP.
- Estimated uninsured deposits, excluding affiliate deposits and fully collateralized public funds, were $1.545 billion, or 26.5% of deposits. Management cited recent banking-sector developments, deposit competition, funding costs, and potential outflows as risks.
- Management said Texas markets remained generally positive but noted inflation, higher rates, building costs, worker shortages, and supply-chain issues. It reported that the Federal Reserve raised its target rate by 50 basis points during the quarter and indicated further increases could occur during 2023. No company earnings or financial guidance was provided.
- Interest-rate simulations estimated next-12-month net interest income increases of 5.44% and 10.50% under immediate rate increases of 100 and 200 basis points, respectively, and decreases of 3.17%, 6.68%, and 13.65% under decreases of 50, 100, and 200 basis points. These are model estimates based on assumptions, not forecasts.
- Interest-rate-driven fair-value declines in securities are a key exposure. Management warned that forced sales to meet liquidity needs could crystallize losses and harm earnings or capital. The HTM portfolio’s estimated fair value was about $135.9 million below amortized cost.
- Q1 noninterest income included a $2.4 million gain on sale of equity securities and a $951,000 BOLI death benefit; AFS securities sales produced a $2.1 million net loss. The quarter also included $15.9 million of share repurchases and $11.0 million of dividends paid. An additional 197,345 shares were repurchased through April 25 at an average $32.99 per share.
- Management considered litigation in the normal course of business not material. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Deposit stability and mix, including uninsured deposits, brokered funding, deposit pricing, and the continued reliance on wholesale borrowings.
- Available contingent liquidity, collateral capacity, and whether liquidity sources remain adequate under rapid deposit outflows.
- Unrealized losses in AFS and HTM securities, AOCI, and the possible effect of any required securities sales on capital.
- Net interest margin and funding-cost trends as rates and the yield curve change; compare actual outcomes with the filing’s model scenarios.
- Loan quality, particularly commercial real estate and construction exposures, and the effect of changed restructuring disclosures on reported nonperforming assets.