SOUTHSIDE BANCSHARES INC quarterly report, Q3 FY2014

完整文档

Southside Bancshares, Inc. — Q3 2014 Form 10-Q

Reporting period: Three and nine months ended September 30, 2014. Financial statements are unaudited. Comparisons are with the same 2013 periods, or December 31, 2013 for balance-sheet figures.

Financial performance

  • Net income: Q3 was $6.1 million, down 31% from $8.9 million; nine-month income was $24.8 million, down 14.6% from $29.0 million.
  • EPS: Q3 diluted EPS was $0.32 versus $0.47; nine-month diluted EPS was $1.31 versus $1.54. Dividends paid were $0.22 per share in Q3 and $0.64 for the nine months.
  • Net interest income: Q3 was $25.7 million, down from $26.6 million; nine-month income was $81.5 million, up from $73.0 million. The reported net interest margin was 3.80% for Q3 and 3.89% for the nine months.
  • Provision and credit costs: Provision for loan losses was $4.9 million in Q3 and $11.7 million for the nine months, compared with $3.6 million and $6.2 million, respectively, in 2013. Nine-month net charge-offs rose to $17.1 million from $7.4 million, mainly associated with SFG subprime auto loans.
  • Noninterest income and expense: Q3 noninterest income was $5.0 million versus $6.4 million; nine-month income was $17.3 million versus $27.7 million. The decline reflected lower securities gains and a $2.2 million SFG Finance impairment. Noninterest expense declined 1.2% in Q3 and 1.8% for the nine months.
  • Cash flow: Nine-month operating cash flow was $60.5 million, investing cash flow was positive $92.1 million, and financing cash flow was negative $137.9 million. Cash and cash equivalents increased $14.8 million to $69.2 million.

Financial position and material changes

  • Assets and loans: Total assets were $3.37 billion, down from $3.45 billion at year-end. Loans were $1.40 billion, up 3.5%; $74.8 million of SFG purchased auto loans were classified as held for sale and excluded from reported loans.
  • Funding and debt: Deposits were $2.44 billion, down from $2.53 billion. FHLB advances totaled $527.8 million, down from $572.8 million; long-term debt was $60.3 million. Management reported wholesale funding at 22.8% of deposits, down from 25.4% at year-end.
  • Allowance and asset quality: The loan-loss allowance was $13.4 million, or 0.96% of loans, versus $18.9 million, or 1.40%, at year-end. Reported nonperforming assets declined to $9.9 million from $13.6 million; including SFG loans transferred to held for sale, they were $11.9 million.
  • Capital and liquidity: Shareholders’ equity was $291.1 million, or 8.6% of assets, up from $259.5 million and 7.5% at year-end. The Bank’s total risk-based capital ratio was 21.50%, and its Tier 1 leverage ratio was 10.04%. Management said the Company and Bank met applicable capital requirements. The Bank reported approximately $451.1 million of additional FHLB borrowing capacity against unpledged securities.
  • Securities: Investment and mortgage-backed securities declined to approximately $1.64 billion from $1.84 billion at year-end. Securities sales and portfolio repositioning helped fund loan growth. Accumulated other comprehensive loss improved to $7.5 million from $21.0 million.

Outlook, risks, and unusual items

  • OmniAmerican acquisition: Southside agreed to acquire OmniAmerican Bancorp, which had $1.3 billion in assets. The merger was expected to close in Q4 2014, subject to regulatory approval and other conditions. Shareholders of both companies approved the transaction on October 14, 2014. Consideration includes 0.4459 Southside shares and $13.125 cash per OmniAmerican share, subject to agreement terms.
  • SFG exit: Southside decided to sell its remaining SFG-purchased subprime auto loans and related repossessed assets, seeking completion in Q4. The transfer of $74.8 million of loans to held for sale involved write-downs and elevated charge-offs; management said no further SFG loan-pool purchases would be made.
  • Operating outlook: Management cited competitive pressure on loan pricing, which could weigh on loan yields and profitability. It also described continued active management of the securities and funding portfolios. The filing provides no specific earnings or revenue guidance.
  • Interest-rate and market risks: Management’s model projected net interest income declines versus its base case under immediate rate shocks: 1.66% and 2.71% for rate increases of 100 and 200 basis points; 3.89% and 4.02% for decreases of 100 and 200 basis points. Results depend on assumptions, including deposit pricing, securities prepayments, and balance-sheet mix.
  • Legal and regulatory matters: A shareholder lawsuit sought to enjoin the OmniAmerican merger. The parties agreed in principle to settle through supplemental disclosures, subject to a definitive agreement and court approval; a potential attorneys’ fee award remained unresolved. Management believed other ordinary-course litigation would not materially affect the company.
  • Controls: Management concluded disclosure controls were effective and stated that a previously identified material weakness concerning premium amortization on callable municipal securities had been remediated, with monitoring and testing ongoing.

Important facts for investors to verify

  • Whether the OmniAmerican merger received regulatory approval and closed on expected terms, and what integration costs or benefits followed.
  • Whether the planned sale of SFG auto loans and repossessed assets was completed, including sale proceeds, realized losses, and remaining exposure.
  • Whether elevated SFG-related charge-offs or changes in portfolio composition require further provision or allowance adjustments.
  • Whether reported asset-quality improvements remain after accounting for SFG loans reclassified as held for sale.
  • Whether the securities portfolio, funding costs, and interest-rate sensitivity evolve as management’s assumptions anticipate.
  • Whether control testing confirms sustained remediation of the municipal securities premium-amortization weakness.