SBSI - Southside Bancshares Inc. Announces Financial Results for the Fourth Quarter and Year Ended December 31 2019

• Linked quarter loans increased $68.3 million, or 2.0%, to $3.57 billion from $3.50 billion
  
  
• Linked quarter nonperforming assets as a percent of total assets decreased from 0.45% to 0.26%
  
  
• Fourth quarter net income was $17.3 million and earnings per diluted common share were $0.51
  
  
• Fourth quarter annualized return on average assets of 1.03%

TYLER, Texas, Jan. 31, 2020 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the quarter and year ended December 31, 2019.  Southside reported net income of $17.3 million for the three months ended December 31, 2019, a decrease of $46,000, or 0.3%, compared to $17.4 million for the same period in 2018.  Earnings per diluted common share increased $0.01, or 2.0%, to $0.51 for the three months ended December 31, 2019, from $0.50 for the same period in 2018.  The annualized return on average shareholders’ equity for the three months ended December 31, 2019 was 8.42%, compared to 9.30% for the same period in 2018.  The annualized return on average assets was 1.03% for the three months ended December 31, 2019, compared to 1.14% for the same period in 2018.

“I am pleased to report Southside enjoyed a solid year in 2019, as earnings per share increased 4.3% to $2.20, loan growth of 7.7%, or $255.4 million, exceeding our original projections, and nonaccrual loans decreased 86.1%, or $30.8 million,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “At December 31, 2019, our nonperforming assets to total assets ratio decreased to 0.26%.”

“For the quarter ended December 31, 2019, provision for loan losses increased $1.5 million on a linked quarter basis largely due to a partial charge-off of a previously reported nonaccrual loan that paid off in the fourth quarter. Linked quarter, our net interest spread and margin declined two and five basis points, respectively, primarily due to securities increasing more than loans and representing a larger percentage of average earning assets when compared to the third quarter.”

“In November we opened our 60^th branch location in Kingwood, just north of Houston. We have loaned into the Houston market for several years and have recently hired a commercial lender designated to this market.  In addition, we anticipate filing an application to open a loan production office within the greater Houston area, which is subject to regulatory approval.”

“The Texas economy remains strong as company relocations and expansions continue to drive both job and population growth.”

Operating Results for the Three Months Ended December 31, 2019

Net income was $17.3 million for the three months ended December 31, 2019, compared to $17.4 million for the same period in 2018, a decrease of $46,000, or 0.3%.  Earnings per diluted common share were $0.51 for the three months ended December 31, 2019, compared to $0.50 for the same period in 2018.  Annualized returns on average assets and average shareholders’ equity for the three months ended December 31, 2019 were 1.03% and 8.42%, respectively.  Our efficiency ratio (FTE) was 53.87% ⁽¹⁾ for the three months ended December 31, 2019, compared to 50.53% for the three months ended September 30, 2019.

Net interest income for the three months ended December 31, 2019 was $43.2 million compared to $42.4 million for the same period in 2018.  Linked quarter, net interest income increased $0.8 million, or 1.9%, compared to $42.4 million during the three months ended September 30, 2019.  The increase in net interest income for the linked quarter was due to the decrease in interest expense on our interest bearing liabilities, a result of a decrease in average rate paid on our interest bearing liabilities during the three months ended December 31, 2019.

Our tax equivalent net interest margin was 2.98% for the three months ended December 31, 2019 compared to 3.21% for the same period in 2018.  The decrease was due to a decrease in average yield on interest earning assets of 20 basis points and an increase in average interest bearing liabilities, partially offset by an increase in interest earnings assets.  The average rate paid on interest bearing liabilities was 1.46% for the three months ended December 31, 2019 and 2018.  Our tax equivalent net interest margin decreased 5 basis points compared to 3.03% for the three months ended September 30, 2019.  This decrease was due to a decrease in the average yield on interest earning assets of 16 basis points and the increase in average interest bearing liabilities.

Noninterest income was $10.5 million for the three months ended December 31, 2019, an increase of 3.3%, compared to $10.1 million for the same period in 2018.  The increase was primarily due to an increase in deposit services income and trust fees.  On a linked quarter basis, noninterest income decreased $0.6 million, or 5.8%, primarily due to a decrease in swap fee income and fair value of written loan commitments, both included in other noninterest income.

Noninterest expense was $30.9 million for the three months ended December 31, 2019, an increase of 2.5%, compared to $30.2 million for the same period in 2018. The increase was due to an increase in salaries and employee benefits, partially offset by decreases in net occupancy expense and FDIC insurance expense. On a linked quarter basis, noninterest expense increased $1.9 million, or 6.6%, compared to the three months ended September 30, 2019.  The $1.0 million increase in salaries and employee benefits was primarily related to employee benefits, which included $0.6 million of increase in health insurance expense and $0.2 million in salaries and payroll taxes.  Additionally, we incurred losses on the disposition of certain assets of approximately $0.6 million, included in other noninterest expense.

Income tax expense increased $0.3 million for the three months ended December 31, 2019 compared to the same period in 2018.  On a linked quarter basis, income tax expense decreased $0.8 million.  Our effective tax rate (“ETR”) increased to 14.1% for the three months ended December 31, 2019 compared to 12.7% for the three months ended December 31, 2018 and decreased compared to 15.6% for the three months ended September 30, 2019.  The higher ETR for the three months ended December 31, 2019, as compared to the same period in 2018, was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income for the three months ended December 31, 2019.

Operating Results for the Year Ended December 31, 2019

Net income was $74.6 million for the year ended December 31, 2019 compared to $74.1 million for the same period in 2018, an increase of $0.4 million, or 0.6%.  Earnings per diluted common share was $2.20 for the year ended December 31, 2019 compared to $2.11 for the same period in 2018, an increase of 4.3%.  The increase in net income was largely driven by increases in interest income and the net gain on the sale of available for sale securities, as well as the decrease in provision for loan losses, partially offset by an increase in interest expense and income tax expense.  Returns on average assets and average shareholders’ equity for the year ended December 31, 2019 were 1.17% and 9.53%, respectively.  Our efficiency ratio (FTE) was 52.36% ⁽¹⁾ for the year ended December 31, 2019.

Net interest income for the year ended December 31, 2019 was $169.8 million, compared to $172.1 million during the same period in 2018, a decrease of $2.3 million, or 1.3%.  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 and, to a lesser extent, an increase in the average balance 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 interest rates and a shift in the mix of earning assets.

Our tax equivalent net interest margin was 3.06% for the year ended December 31, 2019, compared to 3.18% for the same period in 2018.  The decrease was primarily due to the higher rates paid on interest bearing liabilities and the increase in average interest bearing liabilities.

Noninterest income was $42.4 million for the year ended December 31, 2019, an increase of 3.9%, compared to $40.8 million for the same period in 2018.  The increase was primarily due to an increase in net gain on sale of securities available for sale and deposit services income, partially offset by decreases in other noninterest income, bank owned life insurance, trust fees and gain on sale of loans.

Noninterest expense was $119.3 million for the year ended December 31, 2019, compared to $120.1 million for the same period in 2018, a decrease of $0.8 million, or 0.7%.  The decrease was primarily due to a decrease in acquisition expense, FDIC insurance, amortization of intangibles and net occupancy expense, partially offset by increases in salaries and employee benefits, professional fees and software and data processing expense.

Income tax expense increased $3.1 million for the year ended December 31, 2019, compared to the same period in 2018.  Our ETR was approximately 15.1% and 12.1% for the years ended December 31, 2019 and 2018, respectively. The higher ETR for the year ended December 31, 2019, as compared to the same period in 2018, was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income for the year ended December 31, 2019 and a discrete tax benefit of approximately $0.8 million recorded in 2018 associated with the remeasurement of our net deferred tax asset.

Balance Sheet Data

At December 31, 2019, we had $6.75 billion in total assets, compared to $6.12 billion at December 31, 2018 and $6.54 billion at September 30, 2019.

Loans at December 31, 2019 were $3.57 billion, an increase of $255.4 million, or 7.7%, compared to $3.31 billion at December 31, 2018.  Linked quarter loans increased $68.3 million, or 2.0%, from $3.50 billion at September 30, 2019.  The linked quarter net increase in our loans consisted of increases of $23.9 million of construction loans, $19.4 million of commercial loans, $17.1 million of municipal loans and $13.9 million of commercial real estate loans, partially offset by decreases of $5.1 million of 1-4 family residential loans and $0.9 million of loans to individuals.

Securities at December 31, 2019 were $2.49 billion, an increase of $341.1 million, or 15.8%, compared to $2.15 billion at December 31, 2018.  Linked quarter securities increased $112.1 million, or 4.7%, from $2.38 billion at September 30, 2019.

Deposits at December 31, 2019 were $4.70 billion, an increase of $277.7 million, or 6.3%, compared to $4.43 billion at December 31, 2018.  Linked quarter deposits increased $212.0 million, or 4.7%, from $4.49 billion at September 30, 2019, primarily due to an increase in public fund deposits, partially offset by decreases in brokered deposits.

Asset Quality

Nonperforming assets at December 31, 2019 were $17.4 million, or 0.26% of total assets, a decrease of $25.5 million, or 59.3%, compared to $42.9 million, or 0.70% of total assets, at December 31, 2018, and a decrease of $12.3 million, or 41.3%, from $29.7 million, or 0.45% of total assets, at September 30, 2019.  During the three months ended December 31, 2019, our nonaccrual loans decreased $12.2 million, or 71.1%.

The allowance for loan losses decreased to $24.8 million, or 0.69% of total loans, at December 31, 2019 compared to $27.0 million, or 0.82% of total loans, at December 31, 2018, due to a partial reversal of provision during the first quarter of 2019 associated with the sale of three large nonaccrual commercial real estate loans and a decrease in our classified loans during 2019, partially offset by growth in the loan portfolio.  The allowance for loan losses at September 30, 2019 was $25.1 million, or 0.72% of total loans.

For the three months ended December 31, 2019, we recorded provision for loan losses of $2.5 million, compared to $2.4 million for the three months ended December 31, 2018 and $1.0 million for the three months ended September 30, 2019.  The provision for loan losses for the year ended December 31, 2019 was $5.1 million, compared to $8.4 million for the year ended December 31, 2018.

Net charge-offs were $2.8 million for the three months ended December 31, 2019, compared to net charge-offs of $1.5 million for the three months ended December 31, 2018 and $0.6 million net charge-offs for the three months ended September 30, 2019.  Net charge-offs were $7.3 million for the year ended December 31, 2019, compared to $2.2 million for the year ended December 31, 2018.

Dividend

Southside Bancshares, Inc. declared a fourth quarter cash dividend of $0.31 and a special cash dividend of $0.03 per share on November 7, 2019, which was paid on December 12, 2019, to all shareholders of record as of November 27, 2019.

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(1)  Refer to “Non-GAAP Financial Measures” below and to “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 fourth quarter and year ended December 31, 2019 financial results on Friday, January 31, 2020 at 9:00 a.m. CST.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 1545889 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 2019 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 12:00 p.m. CST January 31, 2020 through 12:00 p.m. CST February 12, 2020 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% for the year ended December 31, 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 $6.75 billion in assets as of December 31, 2019, that owns 100% of Southside Bank.  Southside Bank currently has 60 branches in Texas and operates a network of 82 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 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.

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.