Southside Bancshares (SBSI) Misses Q1 EPS by 36c

May 5, 2020 6:53 AM EDT

Southside Bancshares (NASDAQ: SBSI) reported Q1 EPS of $0.12, $0.36 worse than the analyst estimate of $0.48.

  • First quarter provision for credit losses of $25.2 million; largely worsening economic forecast, COVID-19 related;
  • Linked quarter loans increased $32.8 million, or 0.9%, to $3.60 billion from $3.57 billion;
  • Linked quarter nonperforming assets as a percent of total assets decreased to 0.24% from 0.26%;
  • Linked quarter tax-equivalent net interest margin(1) increased 5 basis points to 3.03% from 2.98%.

“Our financial results reflect the strength of our sound credit quality, liquidity, capital position and solid operating fundamentals,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “We are pleased to report net income of $4.0 million, and earnings per share of $0.12, after adopting ASU 2016-13(2) (“CECL”) and recording a $25.2 million provision for credit losses due largely to a worsening economic forecast related to COVID-19. On a linked quarter basis, nonperforming assets as a percent of total assets decreased to 0.24%, and the tax equivalent net interest margin improved five basis points. COVID-19 significantly impacted business operations throughout the United States in the first quarter, banking included, and is expected to continue to impact our business, as well as our customers' businesses. I am proud of how our Southside team embraced the necessary and evolving changes and continued to provide outstanding customer service. Through the Paycheck Protection Program (“PPP”), implemented in April, the Southside team processed approximately 2,000 small business loans, totaling just over $300 million as of April 30, 2020. Additionally, we are assisting our borrowers that may be experiencing financial hardship due to COVID-19 related challenges with payment deferrals, generally for up to three months. As of April 30, 2020, payment deferrals represented $176.7 million of our outstanding loan balances with the largest categories including commercial real estate loans of $112.7 million and 1-4 family residential loans of $47.2 million.”

“While loans increased $32.8 million during the quarter, at this time, other than short-term PPP loan growth, we do not anticipate meaningful loan growth for the remainder of the year due to the current COVID-19 related economic forecast for 2020. Due to the reduced expectations for 2020 loan growth and the significant declines in short and long-term interest rates, we increased our securities portfolio approximately $450 million and entered into an additional $400 million of swaps to lock in long-term interest rates on funding. The interest rate swap contracts had an average interest rate of 0.32% with an average weighted maturity of 5.2 years at March 31, 2020. During March, as volatility in equity markets persisted, U.S. agency mortgage-backed securities and highly rated municipal bonds also began to experience volatility primarily due to illiquidity. When this occurred, we increased the securities portfolio by purchasing $491 million of largely AAA rated municipal bonds of which $8 million were taxable, at levels we believe are attractive. Other security purchases and sales during the quarter were designed to increase the overall yield of the securities portfolio. Due to the timing of these transactions the full impact on interest income and expense will be reflected in future quarters.”

“As the COVID-19 pandemic began to unfold during the quarter, our primary concern was and remains, the safety of our customers and employees, and to that end, we implemented various plans and procedures to achieve that priority as well as continue to provide the quality of service our customers have grown accustomed to. While some of our methods and delivery channels of services have changed temporarily, the high level of quality service our customers expect and deserve has continued. At this time when our country has suffered record job losses, I am very thankful to be able to report that we have not furloughed or laid off any employees as a result of COVID-19. Later in 2020, Southside will celebrate its 60th Anniversary. Over the course of these 60 years, we have seen growth not only in our balance sheet and capital position, but also in the relationships we have formed in the communities we serve. As a result, we believe we are well positioned to navigate these difficult times and emerge eager and ready to help our customers achieve their financial goals.”

For earnings history and earnings-related data on Southside Bancshares (SBSI) click here.

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