• Third quarter net income was $19.8 million and earnings per diluted common share were $0.58
  • Linked quarter loans increased $39.8 million, or 1.1%, to $3.50 billion from $3.46 billion
  • Third quarter annualized return on average shareholders' equity of 9.78% and return on average tangible common equity of 13.96% (1)
  • Third quarter annualized return on average assets of 1.23%
  • Linked quarter nonperforming assets as a percent of total assets decreased from 0.46% to 0.45%

TYLER, Texas, Oct. 25, 2019 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ('Southside' or the 'Company') (NASDAQ:SBSI) today reported its financial results for the quarter ended September 30, 2019. Southside reported net income of $19.8 million for the three months ended September 30, 2019, a decrease of $0.5 million, or 2.5%, compared to $20.3 million for the same period in 2018. Earnings per diluted common share of $0.58 for the three months ended September 30, 2019 remained unchanged when compared to the same period in 2018. The annualized return on average shareholders' equity for the three months ended September 30, 2019 was 9.78%, compared to 10.61% for the same period in 2018. The annualized return on average assets was 1.23% for the three months ended September 30, 2019, compared to 1.30% for the same period in 2018.

'I am extremely pleased to report that Southside had an excellent third quarter highlighted by a linked quarter increase in loans of $39.8 million, a 6.4% increase in linked quarter net income and a 5.5% increase in linked quarter diluted earnings per share of $0.03 per share,' stated Lee R. Gibson, President and Chief Executive Officer of Southside. 'The loan growth in the third quarter was partially offset by several large prepayments.'

'The increase in our linked quarter net income during the third quarter was largely due to a decrease in provision for loan losses of $1.5 million from the prior quarter. Our net interest margin decreased on a linked quarter basis from 3.17% for the second quarter to 3.03% for the third quarter. Most of the growth in average loans and securities was funded by higher cost FHLB advances. In addition, prepayments on mortgage backed securities increased, resulting in an increase in amortization expense.'

'Economic conditions in our East Texas markets remain solid while economic conditions in our DFW and Austin markets continue to be strong. During the third quarter, we received regulatory approval to open our retail in-store branch in Kingwood, Texas. We look forward to opening this branch during the fourth quarter in this high growth market.'

'On September 5, 2019, the Company's Board of Directors approved a Stock Repurchase Plan, authorizing the repurchase, from time to time, of up to 1 million shares of the Company's outstanding common stock. During the third quarter we did not purchase any shares of our common stock. During the fourth quarter through October 23rd, we have purchased 25,615 shares at an average price of $33.47.'

Operating Results for the Three Months Ended September 30, 2019

Net income was $19.8 million for the three months ended September 30, 2019 compared with $20.3 million for the same period in 2018, a decrease of $0.5 million, or 2.5%. Earnings per diluted common share of $0.58 for the three months ended September 30, 2019 remained unchanged when compared to the same period in 2018. The decrease in net income was largely driven by the increase in income tax expense, partially offset by an increase in noninterest income. Annualized returns on average assets and average shareholders' equity for the three months ended September 30, 2019 were 1.23% and 9.78%, respectively. Our efficiency ratio (FTE) was 50.53% (1) for the three months ended September 30, 2019, an improvement from 51.44% for the three months ended June 30, 2019.

Net interest income for each of the three months ended September 30, 2019 and 2018 was $42.4 million. Linked quarter, net interest income decreased $0.8 million, or 1.8%, compared with $43.1 million during the three months ended June 30, 2019. The decrease in net interest income for the linked quarter was due to the increase in interest expense on our interest bearing liabilities, a result of an increase in average interest bearing liabilities during the three months ended September 30, 2019.

Our tax equivalent net interest margin was 3.03% for the three months ended September 30, 2019 compared with 3.14% for the same period in 2018. The decrease was due to a 24 basis point increase in the average cost on interest bearing liabilities which more than offset the 10 basis point increase in the yield on interest earning assets. Our tax equivalent net interest margin decreased 14 basis points compared to 3.17% for the three months ended June 30, 2019. This decrease was due to a decrease in average yield on interest earning assets of 14 basis points and the increase in average interest bearing liabilities.

Noninterest income was $11.1 million for the three months ended September 30, 2019, an increase of 10.9%, compared with $10.0 million for the same period in 2018. The increase was primarily due to an increase in net gain on sale of securities and deposit services income. On a linked quarter basis, noninterest income decreased $0.1 million, or 1.3%, primarily due to the decrease in net gain on sale of securities.

Noninterest expense was $29.0 million for each of the three months ended September 30, 2019 and 2018. On a linked quarter basis, noninterest expense decreased $0.7 million, or 2.3%, compared to the three months ended June 30, 2019, primarily due to decreases in other noninterest expense and FDIC insurance, partially offset by an increase in salaries and employee benefits.

Income tax expense increased $1.5 million for the three months ended September 30, 2019 compared to the same period in 2018. On a linked quarter basis, income tax expense increased $0.1 million. Our effective tax rate ('ETR') increased to 15.6% for the three months ended September 30, 2019 compared to 9.7% for the three months ended September 30, 2018 and decreased compared to 16.1% for the three months ended June 30, 2019. The higher ETR for the three months ended September 30, 2019, as compared to the same period in 2018, was primarily due to a discrete tax benefit of approximately $800,000 recorded in 2018 associated with the remeasurement of our net deferred tax asset and a decrease in tax-exempt income as a percentage of pre-tax income for the three months ended September 30, 2019.

Operating Results for the Nine Months Ended September 30, 2019

Net income was $57.2 million for the nine months ended September 30, 2019 compared with $56.8 million for the same period in 2018, an increase of $0.5 million, or 0.8%. Net income per diluted common share was $1.69 for the nine months ended September 30, 2019 compared with $1.61 for the same period in 2018, an increase of 5.0%. The increase in net income was largely driven by increases in interest income and noninterest income, as well as the decrease in provision for loan losses and noninterest expense, partially offset by an increase in interest expense and income tax expense. Annualized returns on average assets and average shareholders' equity for the nine months ended September 30, 2019 were 1.21% and 9.93%, respectively. Our efficiency ratio (FTE) was 51.85% (1) for the nine months ended September 30, 2019.

Net interest income for the nine months ended September 30, 2019 was $126.6 million compared to $129.7 million during the same period in 2018, a decrease of $3.0 million, or 2.3%. The decrease in net interest income was due to an increase in interest expense, a result of the higher funding costs of our interest bearing liabilities. The increase in interest expense was partially offset by the increase in interest income on our interest earning assets, a result of higher rates and a shift in the mix of earning assets.

Our tax equivalent net interest margin was 3.09% for the nine months ended September 30, 2019 compared with 3.17% for the same period in 2018. The decrease was primarily due to the higher rates paid on interest bearing liabilities.

Noninterest income was $31.9 million for the nine months ended September 30, 2019, an increase of 4.1%, compared with $30.6 million for the same period in 2018. The increase was primarily due to an increase in net gain on sale of securities and deposit services income, partially offset by decreases in trust fees, bank owned life insurance, other noninterest income and gain on sale of loans.

Noninterest expense was $88.4 million for the nine months ended September 30, 2019 compared with $89.9 million for the same period in 2018, a decrease of $1.6 million, or 1.7%. The decrease was primarily due to a decrease in acquisition expense, amortization of intangibles and FDIC insurance, partially offset by increases in salaries and employee benefits, professional fees and software and data processing expense.

Income tax expense increased $2.7 million for the nine months ended September 30, 2019 compared to the same period in 2018. Our ETR was approximately 15.3% and 11.9% for the nine months ended September 30, 2019 and 2018, respectively. The higher ETR for the nine months ended September 30, 2019, as compared to the same period in 2018, was primarily due to a discrete tax benefit of approximately $800,000 recorded in 2018 associated with the remeasurement of our net deferred tax asset and a decrease in tax-exempt income as a percentage of pre-tax income for the nine months ended September 30, 2019.

Balance Sheet Data

At September 30, 2019, we had $6.54 billion in total assets compared with $6.12 billion at December 31, 2018 and $6.37 billion at June 30, 2019.

Loans at September 30, 2019 were $3.50 billion, an increase of $187.1 million, or 5.6%, compared with $3.31 billion at December 31, 2018. Linked quarter loans increased $39.8 million, or 1.1%, from $3.46 billion at June 30, 2019. The linked quarter net increase in our loans consisted of increases of $41.5 million of construction loans, $10.6 million of 1-4 family residential loans, $9.9 million of municipal loans and $0.2 million of loans to individuals, partially offset by decreases of $14.9 million of commercial real estate loans and $7.4 million of commercial loans.

Securities at September 30, 2019 were $2.38 billion, an increase of $229.0 million, or 10.6%, compared with $2.15 billion at December 31, 2018. Linked quarter securities increased $145.5 million, or 6.5%, from $2.24 billion at June 30, 2019.

Deposits at September 30, 2019 were $4.49 billion, an increase of $65.7 million, or 1.5%, compared with $4.43 billion at December 31, 2018. Linked quarter deposits increased $11.5 million, or 0.3%, from $4.48 billion at June 30, 2019 primarily due to an increase in brokered deposits, partially offset by decreases in public fund deposits.

Asset Quality

Nonperforming assets at September 30, 2019 were $29.7 million, or 0.45% of total assets, a decrease of $13.2 million, or 30.7%, compared to $42.9 million, or 0.70% of total assets, at December 31, 2018, and an increase of $0.4 million, or 1.3%, from $29.4 million, or 0.46% of total assets, at June 30, 2019. During the three months ended September 30, 2019, our nonaccrual loans increased $0.8 million, or 4.7%.

The allowance for loan losses decreased to $25.1 million, or 0.72% of total loans at September 30, 2019 compared to $27.0 million, or 0.82% of total loans at December 31, 2018 due to a partial reversal of provision after $1.2 million in charge-offs associated with three large nonaccrual commercial real estate loans sold during the first quarter of 2019. The allowance for loan losses at June 30, 2019 was $24.7 million, or 0.71% of total loans.

For each of the three months ended September 30, 2019 and 2018, we recorded provision for loan losses of $1.0 million compared with $2.5 million for the three months ended June 30, 2019. The provision for loan losses for the nine months ended September 30, 2019 was $2.6 million compared with $6.0 million for the nine months ended September 30, 2018.

Net charge-offs were $0.6 million for the three months ended September 30, 2019 compared with a net recovery of $45,000 for the three months ended September 30, 2018 and $2.0 million net charge-offs for the three months ended June 30, 2019. Net charge-offs were $4.5 million for the nine months ended September 30, 2019 compared with $0.7 million for the nine months ended September 30, 2018.

Dividend

Southside Bancshares, Inc. declared a third quarter cash dividend of $0.31 per share on August 8, 2019, which was paid on September 5, 2019, to all shareholders of record as of August 22, 2019.

_______________
(1) Refer to the 'Non-GAAP Reconciliation' at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Conference Call

Southside's management team will host a conference call to discuss its third quarter ended September 30, 2019 financial results on Friday, October 25, 2019 at 9:00 a.m. CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 6568586 or by identifying 'Southside Bancshares, Inc., Third Quarter 2019 Earnings Call.' To listen to the call via webcast, register at http://investors.southside.com.

For those unable to listen to the conference call live, a recording will be available from approximately 12:00 p.m. CDT October 25, 2019 through November 6, 2019 by accessing the company website, http://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% for the nine months ended September 30, 2019 and 2018 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. We believe this measure to be the preferred industry measurement of net interest income and 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 $6.54 billion in assets as of September 30, 2019, that owns 100% of Southside Bank. Southside Bank currently has 59 branches in Texas and operates a network of 81 ATMs/ITMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/about/investor-relations. 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 Bibby at (903) 630-7965, or [email protected].

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this press release and in other written material, 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,' 'likely,' 'intend,' 'probability,' 'risk,' '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 and estimates about the Company's 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 about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, the Company's ability to sell nonperforming assets, expense reductions, planned operational efficiencies, earnings, successful integration of completed acquisitions and certain market risk disclosures, including the impact of interest rates, tax reform 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.

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, 2018, under 'Part I - Item 1. Forward Looking Information' and 'Part I - Item 1A. Risk Factors' 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)

As of
2019 2018
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
ASSETS
Cash and due from banks $ 92,300 $ 77,319 $ 81,981 $ 87,375 $ 85,103
Interest earning deposits 22,524 54,642 184,612 23,884 70,685
Federal funds sold - 560 3,350 9,460 18,284
Securities available for sale, at estimated fair value 2,240,381 2,088,787 1,876,255 1,989,436 1,939,277
Securities held to maturity, at carrying value 140,955 147,091 147,431 162,931 163,365
Total securities 2,381,336 2,235,878 2,023,686 2,152,367 2,102,642
Federal Home Loan Bank stock, at cost 45,039 44,718 35,269 32,583 32,291
Loans held for sale 1,000 1,812 384 601 954
Loans 3,499,917 3,460,143 3,305,110 3,312,799 3,274,524
Less: Allowance for loan losses (25,129 ) (24,705 ) (24,155 ) (27,019 ) (26,092 )
Net loans 3,474,788 3,435,438 3,280,955 3,285,780 3,248,432
Premises & equipment, net 141,683 140,105 138,290 135,972 133,939
Goodwill 201,116 201,116 201,116 201,116 201,116
Other intangible assets, net 14,391 15,471 16,600 17,779 19,009
Bank owned life insurance 99,916 99,294 98,704 98,160 97,611
Other assets 67,982 66,517 152,249 78,417 95,288
Total assets $ 6,542,075 $ 6,372,870 $ 6,217,196 $ 6,123,494 $ 6,105,354
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits $ 1,038,695 $ 1,028,861 $ 1,038,116 $ 994,680 $ 1,033,572
Interest bearing deposits 3,452,072 3,450,395 3,529,777 3,430,350 3,519,940
Total deposits 4,490,767 4,479,256 4,567,893 4,425,030 4,553,512
Other borrowings and Federal Home Loan Bank borrowings 988,577 849,821 628,498 755,875 570,242
Subordinated notes, net of unamortized debt issuance costs 98,532 98,490 98,448 98,407 98,366
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,249 60,248 60,247 60,246 60,244
Other liabilities 93,497 97,290 104,077 52,645 70,484
Total liabilities 5,731,622 5,585,105 5,459,163 5,392,203 5,352,848
Shareholders' equity 810,453 787,765 758,033 731,291 752,506
Total liabilities and shareholders' equity $ 6,542,075 $ 6,372,870 $ 6,217,196 $ 6,123,494 $ 6,105,354



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

Three Months Ended
2019 2018
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Income Statement:
Total interest income $ 60,555 $ 60,672 $ 59,027 $ 58,022 $ 57,152
Total interest expense 18,182 17,541 17,902 15,612 14,742
Net interest income 42,373 43,131 41,125 42,410 42,410
Provision for loan losses 1,005 2,506 (918 ) 2,446 975
Net interest income after provision for loan losses 41,368 40,625 42,043 39,964 41,435
Noninterest income
Deposit services 6,753 6,652 5,986 6,325 6,317
Net gain (loss) on sale of securities available for sale 42 416 256 61 (741 )
Gain on sale of loans 131 181 93 101 303
Trust fees 1,523 1,520 1,541 1,573 1,568
Bank owned life insurance 622 559 544 554 552
Brokerage services 555 477 517 499 532
Other 1,485 1,449 601 1,021 1,491
Total noninterest income 11,111 11,254 9,538 10,134 10,022
Noninterest expense
Salaries and employee benefits 18,388 17,891 18,046 17,823 17,628
Net occupancy 3,430 3,289 3,175 3,475 3,396
Acquisition expense - - - 118 437
Advertising, travel & entertainment 593 733 847 786 648
ATM expense 232 246 180 250 251
Professional fees 1,192 1,069 1,314 1,189 824
Software and data processing 1,116 1,086 1,076 1,057 977
Communications 480 489 487 477 354
FDIC insurance - 437 422 455 435
Amortization of intangibles 1,080 1,129 1,179 1,228 1,279
Other 2,515 3,331 2,901 3,338 2,733
Total noninterest expense 29,026 29,700 29,627 30,196 28,962
Income before income tax expense 23,453 22,179 21,954 19,902 22,495
Income tax expense 3,661 3,569 3,137 2,521 2,192
Net income $ 19,792 $ 18,610 $ 18,817 $ 17,381 $ 20,303
Common Share Data:
Weighted-average basic shares outstanding 33,773 33,726 33,697 34,611 35,114
Weighted-average diluted shares outstanding 33,901 33,876 33,846 34,748 35,288
Common shares outstanding end of period 33,795 33,749 33,718 33,725 35,160
Net income per common share
Basic $ 0.59 $ 0.55 $ 0.56 $ 0.50 $ 0.58
Diluted 0.58 0.55 0.56 0.50 0.58
Book value per common share 23.98 23.34 22.48 21.68 21.40
Tangible book value per common share (1) 17.60 16.92 16.02 15.19 15.14
Cash dividends paid per common share 0.31 0.31 0.30 0.32 0.30
Selected Performance Ratios:
Return on average assets 1.23 % 1.20 % 1.21 % 1.14 % 1.30 %
Return on average shareholders' equity 9.78 9.68 10.35 9.30 10.61
Return on average tangible common equity (1) 13.96 14.12 15.44 13.95 15.70
Average yield on earning assets (FTE) (1) 4.28 4.42 4.33 4.32 4.18
Average rate on interest bearing liabilities 1.60 1.61 1.62 1.46 1.36
Net interest spread (FTE) (1) 2.68 2.81 2.71 2.86 2.82
Net interest margin (FTE) (1) 3.03 3.17 3.07 3.21 3.14
Average earning assets to average interest bearing liabilities 128.33 128.99 127.70 131.07 131.12
Noninterest expense to average total assets 1.80 1.91 1.91 1.98 1.86
Efficiency ratio (FTE) (1) 50.53 51.44 53.66 52.18 48.91
  1. Refer to the 'Non-GAAP Reconciliation' at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

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

Three Months Ended
2019 2018
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Nonperforming Assets: $ 29,747 $ 29,363 $ 38,111 $ 42,906 $ 39,638
Nonaccrual loans (1) 17,148 16,376 17,691 35,770 32,526
Accruing loans past due more than 90 days (1) - - 7,927 - -
Restructured loans (2) 11,683 11,918 11,490 5,930 5,699
Other real estate owned 912 1,069 978 1,206 1,413
Repossessed assets 4 - 25 - -
Asset Quality Ratios:
Nonaccruing loans to total loans 0.49 % 0.47 % 0.54 % 1.08 % 0.99 %
Allowance for loan losses to nonaccruing loans 146.54 150.86 136.54 75.54 80.22
Allowance for loan losses to nonperforming assets 84.48 84.14 63.38 62.97 65.83
Allowance for loan losses to total loans 0.72 0.71 0.73 0.82 0.80
Nonperforming assets to total assets 0.45 0.46 0.61 0.70 0.65
Net charge-offs (recoveries) to average loans 0.07 0.23 0.24 0.18 (0.01 )
Capital Ratios:
Shareholders' equity to total assets 12.39 12.36 12.19 11.94 12.33
Common equity tier 1 capital 14.19 14.02 14.38 14.77 15.90
Tier 1 risk-based capital 15.61 15.46 15.88 16.29 17.43
Total risk-based capital 18.65 18.52 19.06 19.59 20.75
Tier 1 leverage capital 10.46 10.48 10.18 10.64 11.06
Period end tangible equity to period end tangible assets (3) 9.40 9.28 9.01 8.68 9.05
Average shareholders' equity to average total assets 12.54 12.36 11.70 12.23 12.28
  1. Excludes purchased credit impaired ('PCI') loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.
  2. Includes $0.8 million, $0.8 million, $0.7 million, $3.1 million and $3.2 million in PCI loans restructured as of September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.
  3. Refer to the 'Non-GAAP Reconciliation' at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented (in thousands):

Three Months Ended
2019 2018
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Real Estate Loans:
Construction $ 621,040 $ 579,565 $ 603,411 $ 507,732 $ 484,254
1-4 Family Residential 792,638 782,073 786,198 794,499 791,274
Commercial 1,236,307 1,251,248 1,104,378 1,194,118 1,218,714
Commercial Loans 382,077 389,521 367,995 356,649 322,873
Municipal Loans 366,906 357,028 343,026 353,370 344,792
Loans to Individuals 100,949 100,708 100,102 106,431 112,617
Total Loans $ 3,499,917 $ 3,460,143 $ 3,305,110 $ 3,312,799 $ 3,274,524

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

Nine Months Ended
September 30,
2019 2018
Income Statement:
Total interest income $ 180,254 $ 171,143
Total interest expense 53,625 41,489
Net interest income 126,629 129,654
Provision for loan losses 2,593 5,991
Net interest income after provision for loan losses 124,036 123,663
Noninterest income
Deposit services 19,391 18,757
Net gain (loss) on sale of securities available for sale 714 (1,900 )
Gain on sale of loans 405 591
Trust fees 4,584 5,259
Bank owned life insurance 1,725 2,369
Brokerage services 1,549 1,488
Other 3,535 4,075
Total noninterest income 31,903 30,639
Noninterest expense
Salaries and employee benefits 54,325 52,820
Net occupancy 9,894 10,339
Acquisition expense - 2,295
Advertising, travel & entertainment 2,173 2,108
ATM expense 658 840
Professional fees 3,575 2,846
Software and data processing 3,278 2,939
Communications 1,456 1,370
FDIC insurance 859 1,416
Amortization of intangibles 3,388 3,985
Other 8,747 8,945
Total noninterest expense 88,353 89,903
Income before income tax expense 67,586 64,399
Income tax expense 10,367 7,642
Net income $ 57,219 $ 56,757
Common Share Data:
Weighted-average basic shares outstanding 33,732 35,066
Weighted-average diluted shares outstanding 33,878 35,241
Common shares outstanding end of period 33,795 35,160
Net income per common share
Basic $ 1.70 $ 1.62
Diluted 1.69 1.61
Book value per common share 23.98 21.40
Tangible book value per common share (1) 17.60 15.14
Cash dividends paid per common share 0.92 0.88
Selected Performance Ratios:
Return on average assets 1.21 % 1.21 %
Return on average shareholders' equity 9.93 10.06
Return on average tangible common equity (1) 14.47 15.05
Average yield on earning assets (FTE) (1) 4.34 4.14
Average rate on interest bearing liabilities 1.61 1.25
Net interest spread (FTE) (1) 2.73 2.89
Net interest margin (FTE) (1) 3.09 3.17
Average earning assets to average interest bearing liabilities 128.34 129.51
Noninterest expense to average total assets 1.87 1.91
Efficiency ratio (FTE) (1) 51.85 49.26
  1. Refer to the 'Non-GAAP Reconciliation' at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

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

Nine Months Ended
September 30,
2019 2018
Nonperforming Assets: $ 29,747 $ 39,638
Nonaccrual loans (1) 17,148 32,526
Accruing loans past due more than 90 days (1) - -
Restructured loans (2) 11,683 5,699
Other real estate owned 912 1,413
Repossessed assets 4 -
Asset Quality Ratios:
Nonaccruing loans to total loans 0.49 % 0.99 %
Allowance for loan losses to nonaccruing loans 146.54 80.22
Allowance for loan losses to nonperforming assets 84.48 65.83
Allowance for loan losses to total loans 0.72 0.80
Nonperforming assets to total assets 0.45 0.65
Net charge-offs (recoveries) to average loans 0.18 0.03
Capital Ratios:
Shareholders' equity to total assets 12.39 12.33
Common equity tier 1 capital 14.19 15.90
Tier 1 risk-based capital 15.61 17.43
Total risk-based capital 18.65 20.75
Tier 1 leverage capital 10.46 11.06
Period end tangible equity to period end tangible assets (3) 9.40 9.05
Average shareholders' equity to average total assets 12.21 12.01
  1. Excludes PCI loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.
  2. Includes $0.8 million and $3.2 million in PCI loans restructured as of September 30, 2019 and September 30, 2018, respectively.
  3. Refer to the 'Non-GAAP Reconciliation' at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

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.

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

Three Months Ended
September 30, 2019 June 30, 2019
Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS
Loans (1) $ 3,477,187 $ 43,780 5.00 % $ 3,387,323 $ 43,559 5.16 %
Loans held for sale 2,497 26 4.13 % 1,965 21 4.29 %
Securities:
Taxable investment securities (2) 3,000 26 3.44 % 3,000 27 3.61 %
Tax-exempt investment securities (2) 555,835 5,328 3.80 % 459,996 4,513 3.94 %
Mortgage-backed and related securities (2) 1,660,331 12,569 3.00 % 1,680,109 13,246 3.16 %
Total securities 2,219,166 17,923 3.20 % 2,143,105 17,786 3.33 %
Federal Home Loan Bank stock, at cost, and equity investments 57,108 422 2.93 % 52,311 440 3.37 %
Interest earning deposits 26,746 206 3.06 % 66,017 411 2.50 %
Federal funds sold - - - 3,365 39 4.65 %
Total earning assets 5,782,704 62,357 4.28 % 5,654,086 62,256 4.42 %
Cash and due from banks 73,815 78,757
Accrued interest and other assets 570,657 534,835
Less: Allowance for loan losses (24,938 ) (24,838 )
Total assets $ 6,402,238 $ 6,242,840
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings accounts $ 367,615 270 0.29 % $ 365,205 262 0.29 %
Certificates of deposits 1,118,410 6,011 2.13 % 1,119,464 5,861 2.10 %
Interest bearing demand accounts 1,966,764 5,085 1.03 % 1,969,593 5,334 1.09 %
Total interest bearing deposits 3,452,789 11,366 1.31 % 3,454,262 11,457 1.33 %
Federal Home Loan Bank borrowings 881,088 4,647 2.09 % 755,748 3,899 2.07 %
Subordinated notes, net of unamortized debt issuance costs 98,511 1,425 5.74 % 98,469 1,410 5.74 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,248 685 4.51 % 60,247 718 4.78 %
Other borrowings 13,401 59 1.75 % 14,530 57 1.57 %
Total interest bearing liabilities 4,506,037 18,182 1.60 % 4,383,256 17,541 1.61 %
Noninterest bearing deposits 1,020,325 1,014,746
Accrued expenses and other liabilities 72,923 73,494
Total liabilities 5,599,285 5,471,496
Shareholders' equity 802,953 771,344
Total liabilities and shareholders' equity $ 6,402,238 $ 6,242,840
Net interest income (FTE) $ 44,175 $ 44,715
Net interest margin (FTE) 3.03 % 3.17 %
Net interest spread (FTE) 2.68 % 2.81 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of September 30, 2019 and June 30, 2019, loans totaling $17.1 million and $16.4 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

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

Three Months Ended
March 31, 2019 December 31, 2018
Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS
Loans (1) $ 3,296,665 $ 42,210 5.19 % $ 3,289,840 $ 41,320 4.98 %
Loans held for sale 611 7 4.65 % 633 8 5.01 %
Securities:
Taxable investment securities (2) 3,000 28 3.79 % 13,066 103 3.13 %
Tax-exempt investment securities (2) 659,187 5,732 3.53 % 722,162 7,828 4.30 %
Mortgage-backed and related securities (2) 1,647,564 12,474 3.07 % 1,434,982 10,394 2.87 %
Total securities 2,309,751 18,234 3.20 % 2,170,210 18,325 3.35 %
Federal Home Loan Bank stock, at cost, and equity investments 53,764 355 2.68 % 44,304 393 3.52 %
Interest earning deposits 64,690 386 2.42 % 36,098 411 4.52 %
Federal funds sold 7,635 47 2.50 % 16,967 97 2.27 %
Total earning assets 5,733,116 61,239 4.33 % 5,558,052 60,554 4.32 %
Cash and due from banks 83,147 79,544
Accrued interest and other assets 513,738 452,257
Less: Allowance for loan losses (27,060 ) (26,231 )
Total assets $ 6,302,941 $ 6,063,622
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings accounts $ 360,664 258 0.29 % $ 361,407 257 0.28 %
Certificates of deposit 1,154,203 5,697 2.00 % 1,123,101 5,170 1.83 %
Interest bearing demand accounts 1,982,891 5,286 1.08 % 1,968,786 4,908 0.99 %
Total interest bearing deposits 3,497,758 11,241 1.30 % 3,453,294 10,335 1.19 %
Federal Home Loan Bank borrowings 816,389 4,457 2.21 % 612,134 3,066 1.99 %
Subordinated notes, net of unamortized debt issuance costs 98,428 1,400 5.77 % 98,385 1,431 5.77 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,246 729 4.91 % 60,245 699 4.60 %
Other borrowings 16,788 75 1.81 % 16,405 81 1.96 %
Total interest bearing liabilities 4,489,609 17,902 1.62 % 4,240,463 15,612 1.46 %
Noninterest bearing deposits 986,343 1,034,556
Accrued expenses and other liabilities 89,768 47,234
Total liabilities 5,565,720 5,322,253
Shareholders' equity 737,221 741,369
Total liabilities and shareholders' equity $ 6,302,941 $ 6,063,622
Net interest income (FTE) $ 43,337 $ 44,942
Net interest margin (FTE) 3.07 % 3.21 %
Net interest spread (FTE) 2.71 % 2.86 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of March 31, 2019 and December 31, 2018, loans totaling $17.7 million and $35.8 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

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

Three Months Ended
September 30, 2018
Average Balance Interest Average Yield/Rate
ASSETS
Loans (1) $ 3,286,664 $ 40,396 4.88 %
Loans held for sale 1,841 25 5.39 %
Securities:
Taxable investment securities (2) 4,285 36 3.33 %
Tax-exempt investment securities (2) 795,397 8,132 4.06 %
Mortgage-backed and related securities (2) 1,418,114 10,086 2.82 %
Total securities 2,217,796 18,254 3.27 %
Federal Home Loan Bank stock, at cost, and equity investments 54,216 377 2.76 %
Interest earning deposits 77,977 414 2.11 %
Federal funds sold 16,072 77 1.90 %
Total earning assets 5,654,566 59,543 4.18 %
Cash and due from banks 78,623
Accrued interest and other assets 477,737
Less: Allowance for loan losses (25,646 )
Total assets $ 6,185,280
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings accounts $ 362,405 258 0.28 %
Certificates of deposit 1,173,672 4,744 1.60 %
Interest bearing demand accounts 1,953,904 4,495 0.91 %
Total interest bearing deposits 3,489,981 9,497 1.08 %
Federal Home Loan Bank borrowings 654,153 3,108 1.88 %
Subordinated notes, net of unamortized debt issuance costs 98,346 1,423 5.74 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,244 684 4.50 %
Other borrowings 9,651 30 1.23 %
Total interest bearing liabilities 4,312,375 14,742 1.36 %
Noninterest bearing deposits 1,064,797
Accrued expenses and other liabilities 48,699
Total liabilities 5,425,871
Shareholders' equity 759,409
Total liabilities and shareholders' equity $ 6,185,280
Net interest income (FTE) $ 44,801
Net interest margin (FTE) 3.14 %
Net interest spread (FTE) 2.82 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of September 30, 2018, loans totaling $32.5 million were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

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

Nine Months Ended
September 30, 2019 September 30, 2018
Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS
Loans (1) $ 3,387,719 $ 129,549 5.11 % $ 3,290,925 $ 119,662 4.86 %
Loans held for sale 1,698 54 4.25 % 1,727 55 4.26 %
Securities:
Taxable investment securities (2) 3,000 81 3.61 % 16,707 314 2.51 %
Tax-exempt investment securities (2) 557,961 15,573 3.73 % 800,998 24,136 4.03 %
Mortgage-backed and related securities (2) 1,662,715 38,289 3.08 % 1,471,179 31,190 2.83 %
Total securities 2,223,676 53,943 3.24 % 2,288,884 55,640 3.25 %
Federal Home Loan Bank stock, at cost, and equity investments 54,407 1,217 2.99 % 58,601 1,202 2.74 %
Interest earning deposits 52,345 1,003 2.56 % 92,477 1,213 1.75 %
Federal funds sold 3,639 86 3.16 % 15,202 197 1.73 %
Total earning assets 5,723,484 185,852 4.34 % 5,747,816 177,969 4.14 %
Cash and due from banks 78,539 77,407
Accrued interest and other assets 538,248 481,279
Less: Allowance for loan losses (25,604 ) (23,753 )
Total assets $ 6,314,667 $ 6,282,749
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings accounts $ 364,520 790 0.29 % $ 358,870 650 0.24 %
Certificates of deposit 1,130,561 17,569 2.08 % 1,173,000 12,942 1.48 %
Interest bearing demand accounts 1,973,024 15,705 1.06 % 1,981,293 11,937 0.81 %
Total interest bearing deposits 3,468,105 34,064 1.31 % 3,513,163 25,529 0.97 %
Federal Home Loan Bank borrowings 817,978 13,003 2.13 % 757,399 9,747 1.72 %
Subordinated notes, net of unamortized debt issuance costs 98,470 4,235 5.75 % 98,307 4,228 5.75 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,247 2,132 4.73 % 60,242 1,911 4.24 %
Other borrowings 14,894 191 1.71 % 9,018 74 1.10 %
Total interest bearing liabilities 4,459,694 53,625 1.61 % 4,438,129 41,489 1.25 %
Noninterest bearing deposits 1,007,263 1,042,432
Accrued expenses and other liabilities 76,963 47,591
Total liabilities 5,543,920 5,528,152
Shareholders' equity 770,747 754,597
Total liabilities and shareholders' equity $ 6,314,667 $ 6,282,749
Net interest income (FTE) $ 132,227 $ 136,480
Net interest margin (FTE) 3.09 % 3.17 %
Net interest spread (FTE) 2.73 % 2.89 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of September 30, 2019 and 2018, loans totaling $17.1 million and $32.5 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

The following tables set forth the reconciliation of return on average common equity to return on average tangible common equity, book value per share to tangible book value per share, net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities, along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE) for the applicable periods presented.

Southside Bancshares, Inc.
Non-GAAP Reconciliation (Unaudited)
(Dollars and shares in thousands, except per share data)

Three Months Ended Nine Months Ended
2019 2018 2019 2018
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
Reconciliation of return on average common equity to return on average tangible common equity:
Net income $ 19,792 $ 18,610 $ 18,817 $ 17,381 $ 20,303 $ 57,219 $ 56,757
After-tax amortization expense 853 892 931 970 1,010 2,677 3,148
Adjusted net income available to common shareholders $ 20,645 $ 19,502 $ 19,748 $ 18,351 $ 21,313 $ 59,896 $ 59,905
Average shareholders' equity $ 802,953 $ 771,344 $ 737,221 $ 741,369 $ 759,409 $ 770,747 $ 754,597
Less: Average intangibles for the period (216,169 ) (217,266 ) (218,438 ) (219,645 ) (220,956 ) (217,283 ) (222,325 )
Average tangible shareholders' equity $ 586,784 $ 554,078 $ 518,783 $ 521,724 $ 538,453 $ 553,464 $ 532,272
Return on average tangible common equity 13.96 % 14.12 % 15.44 % 13.95 % 15.70 % 14.47 % 15.05 %
Reconciliation of book value per share to tangible book value per share:
Common equity at end of period $ 810,453 $ 787,765 $ 758,033 $ 731,291 $ 752,506 $ 810,453 $ 752,506
Less: Intangible assets at end of period (215,507 ) (216,587 ) (217,716 ) (218,895 ) (220,125 ) (215,507 ) (220,125 )
Tangible common shareholders' equity at end of period $ 594,946 $ 571,178 $ 540,317 $ 512,396 $ 532,381 $ 594,946 $ 532,381
Total assets at end of period $ 6,542,075 $ 6,372,870 $ 6,217,196 $ 6,123,494 $ 6,105,354 $ 6,542,075 $ 6,105,354
Less: Intangible assets at end of period (215,507 ) (216,587 ) (217,716 ) (218,895 ) (220,125 ) (215,507 ) (220,125 )
Tangible assets at end of period $ 6,326,568 $ 6,156,283 $ 5,999,480 $ 5,904,599 $ 5,885,229 $ 6,326,568 $ 5,885,229
Period end tangible equity to period end tangible assets 9.40 % 9.28 % 9.01 % 8.68 % 9.05 % 9.40 % 9.05 %
Common shares outstanding end of period 33,795 33,749 33,718 33,725 35,160 33,795 35,160
Tangible book value per common share $ 17.60 $ 16.92 $ 16.02 $ 15.19 $ 15.14 $ 17.60 $ 15.14
Reconciliation of efficiency ratio to efficiency ratio (FTE), net interest margin to net interest margin (FTE) and net interest spread to net interest spread (FTE):
Net interest income (GAAP) $ 42,373 $ 43,131 $ 41,125 $ 42,410 $ 42,410 $ 126,629 $ 129,654
Tax equivalent adjustments:
Loans 641 598 598 599 590 1,837 1,755
Tax-exempt investment securities 1,161 986 1,614 1,933 1,801 3,761 5,071
Net interest income (FTE) (1) 44,175 44,715 43,337 44,942 44,801 132,227 136,480
Noninterest income 11,111 11,254 9,538 10,134 10,022 31,903 30,639
Nonrecurring income (2) (42 ) (557 ) 171 (66 ) 741 (428 ) 1,264
Total revenue $ 55,244 $ 55,412 $ 53,046 $ 55,010 $ 55,564 $ 163,702 $ 168,383
Noninterest expense $ 29,026 $ 29,700 $ 29,627 $ 30,196 $ 28,962 $ 88,353 $ 89,903
Pre-tax amortization expense (1,080 ) (1,129 ) (1,179 ) (1,228 ) (1,279 ) (3,388 ) (3,985 )
Nonrecurring expense (3) (33 ) (67 ) 18 (264 ) (507 ) (82 ) (2,972 )
Adjusted noninterest expense $ 27,913 $ 28,504 $ 28,466 $ 28,704 $ 27,176 $ 84,883 $ 82,946
Efficiency ratio 52.23 % 52.95 % 56.00 % 54.70 % 51.11 % 53.69 % 51.34 %
Efficiency ratio (FTE) (1) 50.53 % 51.44 % 53.66 % 52.18 % 48.91 % 51.85 % 49.26 %
Average earning assets $ 5,782,704 $ 5,654,086 $ 5,733,116 $ 5,558,052 $ 5,654,566 $ 5,723,484 $ 5,747,816
Net interest margin 2.91 % 3.06 % 2.91 % 3.03 % 2.98 % 2.96 % 3.02 %
Net interest margin (FTE) (1) 3.03 % 3.17 % 3.07 % 3.21 % 3.14 % 3.09 % 3.17 %
Net interest spread 2.55 % 2.69 % 2.56 % 2.68 % 2.65 % 2.60 % 2.73 %
Net interest spread (FTE) (1) 2.68 % 2.81 % 2.71 % 2.86 % 2.82 % 2.73 % 2.89 %
  1. These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
  2. These adjustments may include net gain and loss on sale of securities available for sale, loss on fair value hedge, other-than-temporary impairment charges and additional bank owned life insurance income realized as a result of the death benefits for a retired covered officer, in the periods where applicable.
  3. These adjustments may include acquisition expenses, foreclosure expenses and branch closure expenses, in the periods where applicable.
Source: Southside Bancshares, Inc.

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Southside Bancshares Inc. published this content on 25 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 October 2019 10:35:08 UTC