SBSI - Southside Bancshares Inc. Announces Financial Results for the Fourth Quarter and Year Ended December 31 2021

• Fourth quarter net income of $28.7 million;
• Record annual net income of $113.4 million, an increase of 38.0%, compared to the same period in 2020;
• Annualized linked quarter loan growth, net of Paycheck Protection Program (“PPP”) loans, of 3.8%;
• Annualized linked quarter deposit growth, net of brokered deposits, of 15.9%;
• Linked quarter net interest margin increased to 3.23% ;
• Annualized return on fourth quarter average assets of 1.57%;
• Annualized return on fourth quarter average tangible common equity of 16.80% ⁽¹⁾ ; and
• Nonperforming assets decreased to 0.16% of total assets.

TYLER, Texas, Jan. 28, 2022 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ: SBSI) today reported its financial results for the quarter and year ended December 31, 2021. Southside reported net income of $28.7 million for the three months ended December 31, 2021, a decrease of $0.9 million, or 3.0%, compared to $29.6 million for the same period in 2020. Earnings per diluted common share were $0.88 for the three months ended December 31, 2021, compared to $0.89 for the same period in 2020. The annualized return on average shareholders’ equity for the three months ended December 31, 2021 was 12.67%, compared to 13.77% for the same period in 2020.  The annualized return on average assets was 1.57% for the three months ended December 31, 2021, compared to 1.64% for the same period in 2020.

“We reported exceptional financial results for 2021, thanks to the outstanding performance of the Southside team. Highlights included record net income of $113.4 million, a 1.59% return on average assets, a 17.04% return on average tangible common equity, an increase in our net interest margin to 3.16% and continued strong asset quality,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “During 2021, we increased the cash dividend per share 5.4% and reduced the efficiency ratio ⁽¹⁾ to 49.03%. In addition, deposits increased $790 million, or 16%, and loans, net of PPP loans, increased $171.2 million, or 5%.”

“As we enter 2022, we do so with a strong balance sheet, capital levels and credit metrics that we believe position us well for continued success. Our loan pipeline is strong, and we anticipate first quarter payoffs will be significantly less than we experienced during the fourth quarter. We remain encouraged by the continued strong economic conditions in the market areas we serve.”

Operating Results for the Three Months Ended December 31, 2021

Net income was $28.7 million for the three months ended December 31, 2021, compared to $29.6 million for the same period in 2020, a decrease of $0.9 million, or 3.0%. Earnings per diluted common share were $0.88 and $0.89 for the three months ended December 31, 2021 and 2020, respectively. The decrease in net income was primarily a result of a decrease in the reversal of provision for credit losses and an increase in income tax expense, partially offset by increases in noninterest income and net interest income. Annualized returns on average assets and average shareholders’ equity for the three months ended December 31, 2021 were 1.57% and 12.67%, respectively, compared to 1.64% and 13.77%, respectively, for the three months ended December 31, 2020.  Our efficiency ratio and tax equivalent efficiency ratio ⁽¹⁾ were 50.34% and 47.61%, respectively, for the three months ended December 31, 2021, compared to 49.86% and 47.36%, respectively, for the three months ended December 31, 2020, and 50.64% and 47.92%, respectively, for the three months ended September 30, 2021.

Net interest income for the three months ended December 31, 2021 was $49.4 million, compared to $48.7 million for the same period in 2020, an increase of 1.4%. The increase in net interest income compared to the same period in 2020 was due to the decrease in interest expense on our interest bearing liabilities due to the decline in the average balance and overall rate paid on our interest bearing liabilities, partially offset by the decrease in interest income, a result of a decrease in the interest income from PPP loans during the three months ended December 31, 2021. Linked quarter, net interest income increased $1.2 million, or 2.5%, compared to $48.2 million during the three months ended September 30, 2021. The increase in net interest income was primarily due to a decrease in the average rate and balance on our interest bearing liabilities.

Our net interest margin and tax equivalent net interest margin ⁽¹⁾ increased to 3.01% and 3.23%, respectively, for the three months ended December 31, 2021, compared to 3.00% and 3.20%, respectively, for the same period in 2020. Linked quarter, net interest margin increased 5 basis points from 2.96% and tax equivalent net interest margin ⁽¹⁾ increased 7 basis points from 3.16% for the three months ended September 30, 2021.

Noninterest income was $12.0 million for the three months ended December 31, 2021, an increase of $1.1 million, or 10.2%, compared to $10.9 million for the same period in 2020. The increase was due to increases in net gain on sale of securities available for sale (“AFS”), deposit services income, brokerage services income and trust fees, partially offset by a decrease in gain on sale of loans. On a linked quarter basis, noninterest income decreased $0.8 million, or 5.9%, compared to the three months ended September 30, 2021. The decrease was due to a decrease in net gain on sale of securities AFS.

Noninterest expense was $31.3 million for the three months ended December 31, 2021 and December 31, 2020. On a linked quarter basis, noninterest expense decreased $0.4 million, or 1.4%, compared to the three months ended September 30, 2021, due to the $1.1 million loss on the redemption of subordinated notes during the third quarter.

Income tax expense increased $0.5 million for the three months ended December 31, 2021 compared to the same period in 2020. On a linked quarter basis, income tax expense decreased $0.2 million, or 3.3%. Our effective tax rate (“ETR”) increased to 14.4% for the three months ended December 31, 2021, compared to 12.6% for the three months ended December 31, 2020, primarily a result of the increase in the annual ETR. Linked quarter, our ETR decreased slightly from 14.5% for the three months ended September 30, 2021, primarily due to a discrete tax benefit recorded in connection with equity award transactions.

Operating Results for the Year Ended December 31, 2021

Net income was $113.4 million for the year ended December 31, 2021, compared to $82.2 million for the same period in 2020, an increase of $31.2 million, or 38.0%. Earnings per diluted common share were $3.47 for the year ended December 31, 2021, compared to $2.47 for the same period in 2020, an increase of 40.5%. The increase in net income was a direct result of a reversal of the provision for credit losses compared to a large increase in the allowance for credit losses for the same period in 2020. Returns on average assets and average shareholders’ equity for the year ended December 31, 2021 were 1.59% and 12.77%, respectively, compared to 1.14% and 9.91%, respectively, for the year ended December 31, 2020.  Our efficiency ratio and tax equivalent efficiency ratio ⁽¹⁾ were 51.74% and 49.03%, respectively, for the year ended December 31, 2021, compared to 51.85% and 49.36%, respectively, for the year ended December 31, 2020.

Net interest income was $189.6 million for the year ended December 31, 2021, compared to $187.3 million for the same period in 2020, due to the decrease in interest expense on our interest bearing liabilities, partially offset by the decrease in interest income, both primarily a result of an overall decline in interest rates.

Our net interest margin and tax equivalent net interest margin ⁽¹⁾ were 2.96% and 3.16%, respectively, for the year ended December 31, 2021, compared to 2.89% and 3.07%, respectively, for the same period in 2020. The increase in net interest margin was due to lower average rates and balances on our interest bearing liabilities, partially offset by a lower average yield on our interest earning assets during the year ended December 31, 2021.

Noninterest income was $49.3 million for the year ended December 31, 2021, a decrease of 0.8%, compared to $49.7 million for the same period in 2020. The decrease was due to decreases in net gain on sale of securities AFS and gain on sale of loans, partially offset by increases in deposit services income, other noninterest income, brokerage services income and trust fees.

Noninterest expense was $125.0 million for the year ended December 31, 2021, compared to $123.3 million for the same period in 2020, an increase of $1.7 million, or 1.4%. The increase was the result of increases in salaries and employee benefits, a loss on the redemption of subordinated notes, increases in software and data processing expense and FDIC insurance, partially offset by decreases in other noninterest expense and amortization of intangibles.

Income tax expense increased $6.1 million, or 53.7%, for the year ended December 31, 2021, compared to the same period in 2020. Our ETR was approximately 13.3% and 12.1% for the year ended December 31, 2021 and 2020, respectively. The higher ETR for the year ended December 31, 2021, as compared to the same period in 2020, was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income.

Balance Sheet Data

At December 31, 2021, we had $7.26 billion in total assets, compared to $7.01 billion at December 31, 2020 and $7.14 billion at September 30, 2021.

Loans at December 31, 2021 were $3.65 billion, a decrease of $12.6 million, or 0.3%, compared to $3.66 billion at December 31, 2020. Our PPP loans, a component of the commercial loan category, decreased $183.8 million during the year due to forgiveness payments received for loans funded under the Coronavirus Aid, Relief, and Economic Security Act. Excluding PPP loans, total loans increased $171.2 million, or 5.0%, due to increases of $302.4 million in commercial real estate loans, $45.7 million in commercial loans (excluding PPP loans) and $34.1 million in municipal loans. The increases were partially offset by decreases of $134.1 million in construction loans, $68.8 million in 1-4 family residential loans and $8.1 million in loans to individuals. Excluding a $36.5 million decrease in PPP loans during the quarter, linked quarter loans increased $34.0 million, or 1.0%, due to increases of $25.8 million in construction loans, $15.8 million in municipal loans and $11.7 million in commercial loans (excluding PPP loans). This was partially offset by decreases of $9.5 million in 1-4 family loans, $7.0 million in commercial real estate loans and $2.8 million in loans to individuals.

Securities at December 31, 2021 were $2.86 billion, an increase of $158.8 million, or 5.9%, compared to $2.70 billion at December 31, 2020. Linked quarter, securities increased $9.5 million, or 0.3%, from $2.85 billion at September 30, 2021.

Deposits at December 31, 2021 were $5.72 billion, an increase of $790.0 million, or 16.0%, compared to $4.93 billion at December 31, 2020. Linked quarter, deposits increased $390.7 million, or 7.3%, from $5.33 billion at September 30, 2021. During the three months ended December 31, 2021, brokered deposits increased $181.3 million, or 159.8%, associated with funding our cash flow hedge swaps in place of the Federal Home Loan Bank advances to obtain lower cost funding.

Asset Quality

Nonperforming assets at December 31, 2021 were $11.6 million, or 0.16% of total assets, a decrease of $5.9 million, or 33.6%, compared to $17.5 million, or 0.25% of total assets, at December 31, 2020, and a decrease from $12.4 million, or 0.17% of total assets, at September 30, 2021. During the three months ended December 31, 2021, nonaccrual loans decreased $0.5 million, or 15.8%.

The allowance for loan losses decreased to $35.3 million, or 0.97% of total loans, at December 31, 2021, compared to $49.0 million, or 1.34% of total loans, at December 31, 2020. The decrease was primarily due to an improved economic forecast and improved asset quality. The allowance for loan losses was $38.0 million, or 1.04% of total loans, at September 30, 2021. The decrease compared to the end of the third quarter was primarily due to an improved forecast for commercial real estate, as well as the impact of loan payoffs on the allowance.

We recorded a reversal of provision for credit losses for loans of $2.7 million, $5.9 million and $4.4 million for the three month periods ended December 31, 2021, 2020, and September 30, 2021, respectively. Net charge-offs were $34,000 for the three months ended December 31, 2021, compared to net charge-offs of $0.2 million for the three months ended December 31, 2020 and $0.5 million of net charge-offs for the three months ended September 30, 2021. Net charge-offs were $0.8 million for the year ended December 31, 2021, compared to $1.2 million for the year ended December 31, 2020.

We recorded a reversal of provision for credit losses for off-balance-sheet credit exposures of $0.7 million for the three months ended December 31, 2021, as compared to a provision of $0.4 million for the three months ended December 31, 2020 and a reversal of provision of $0.7 million for the three months ended September 30, 2021. For the year ended December 31, 2021, we recorded a reversal of provision of $4.0 million, compared to a provision for credit losses for off-balance-sheet credit exposures of $0.1 million for the year ended December 31, 2020. The balance of the allowance for off-balance-sheet credit exposures at December 31, 2021 was $2.4 million and is included in other liabilities.

Dividend

Southside Bancshares, Inc. declared a fourth quarter cash dividend of $0.33 and a special cash dividend of $0.06 per share on November 4, 2021, which was paid on December 9, 2021, to all shareholders of record as of November 24, 2021.

_______________

Conference Call

Southside's management team will host a conference call to discuss its fourth quarter and year ended December 31, 2021 financial results on Friday, January 28, 2022 at 11:00 a.m. CST.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 5753376 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 2021 Earnings Call.”  To listen to the call via webcast, register at https://investors.southside.com.

For those unable to listen to the conference call live, a recording will be available from approximately 2:00 p.m. CST January 28, 2022 through 2:00 p.m. CST February 9, 2022 by accessing the company website, https://investors.southside.com.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the following fully taxable-equivalent measures (“FTE”): (i) Net interest income (FTE), (ii) net interest margin (FTE), (iii) net interest spread (FTE), and (iv) efficiency ratio (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% to increase tax-exempt interest income to a tax-equivalent basis. Interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments.

Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE). Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe this measure to be the preferred industry measurement of net interest income and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Efficiency ratio (FTE). The efficiency ratio (FTE) is a non-GAAP measure that provides a measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. The ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense, excluding amortization expense on intangibles and certain nonrecurring expense by the sum of net interest income (FTE) and noninterest income, excluding net gain (loss) on sale of securities available for sale and certain nonrecurring impairments. The most directly comparable financial measure calculated in accordance with GAAP is our efficiency ratio.

These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently. Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.

Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reflected in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables.

A reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $7.26 billion in assets as of December 31, 2021, that owns 100% of Southside Bank.  Southside Bank currently has 56 branches in Texas and operates a network of 73 ATMs/ITMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at https://investors.southside.com. Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data.  To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website.  Questions or comments may be directed to Lindsey Bailes at (903) 630-7965, or lindsey.bailes@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this press release and in other written materials, documents and oral statements issued by or on behalf of the Company may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date.  These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “target,” “objective,” “plans,” “potential,” and similar expressions.  Forward-looking statements are statements with respect to the Company’s beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements.  For example, discussions of the effect of our expansion, benefits of the Share Repurchase Plan, trends in asset quality, capital, liquidity, the Company's ability to sell nonperforming assets, expense reductions, planned operational efficiencies and earnings from growth and certain market risk disclosures, including the impact of interest rates, tax reform, inflation and other economic factors are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.  Accordingly, our results could materially differ from those that have been estimated. The most recent factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the negative impact of the COVID-19 pandemic and related variants on our business, financial position, operations and prospects, including our ability to continue our business activities in certain communities we serve, the duration of the pandemic and its continued effects on financial markets, a reduction in financial transactions and business activities resulting in decreased deposits and reduced loan originations, increases in unemployment rates impacting our borrowers’ ability to repay their loans, our ability to manage liquidity in a rapidly changing and unpredictable market, additional interest rate changes by the Federal Reserve and other government actions in response to the pandemic, including regulations or laws enacted to counter the effects of the COVID-19 pandemic on the economy.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, under “Part I - Item 1. Forward Looking Information” and in the Company’s other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

Southside Bancshares, Inc.
Consolidated Financial Summary (Unaudited)
(Dollars in thousands)

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars and shares in thousands, except per share data)

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)

The tables that follow show average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities for the periods presented. The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures. See “Non-GAAP Financial Measures” and “Non-GAAP Reconciliation” for more information.