SBSI - Southside Bancshares Inc. Announces Financial Results for the Three Months and Year Ended December 31 2018

February, 01 2019 06:30 AM Southside Bancshares Inc.

TYLER, Texas, Feb. 01, 2019 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three months and year ended December 31, 2018.

Southside reported net income of $17.4 million for the three months ended December 31, 2018, an increase of $7.1 million, or 68.2%, compared to $10.3 million for the same period in 2017. Southside reported net income of $74.1 million for the year ended December 31, 2018, an increase of $19.8 million, or 36.5%, compared to $54.3 million for the same period in 2017.

Earnings per diluted common share increased $0.17, or 51.5%, to $0.50 for the three months ended December 31, 2018, from $0.33 for the same period in 2017. Earnings per diluted common share increased $0.30, or 16.6%, to $2.11 for the year ended December 31, 2018, from $1.81 for the same period in 2017.

The return on average shareholders’ equity for the year ended December 31, 2018 was 9.87%, compared to 9.65% for the same period in 2017. The return on average assets was 1.19% for the year ended December 31, 2018, compared to 0.96% for the same period in 2017.

“We reported net income of $17.4 million, an increase in our net margin and spread and an increase in total loans during the fourth quarter,” stated Lee R. Gibson, President and Chief Executive Officer of Southside.

“During the fourth quarter we experienced an increase in our loans of $38.3 million, largely driven by growth in our commercial loan portfolio and to a lesser extent construction loans and municipal loans. For the year ended December 31, 2018, loans increased slightly by $18.4 million. We believe our loan pipeline is solid for the first quarter of 2019 with a number of loans expected to fund, however, we also expect a number of loan payoffs during the first quarter, partially offsetting those funded. Loan growth during the quarter was partially responsible for the seven basis point increase in our net interest margin and the four basis point increase in our net interest spread, on a linked quarter basis. Economic conditions in our Texas markets remain solid. Current economic projections for 2019 for Texas are positive with the Austin and DFW markets projected to continue to experience robust economies, driven by company relocations and overall population growth.”

“On October 25, 2018 the Company's Board of Directors approved a Stock Repurchase Plan. The Board authorized the repurchase, from time to time, of up to 1,500,000 shares of common stock in open market purchases and privately negotiated transactions at prevailing market prices. During the fourth quarter we purchased approximately 1.46 million shares of our common stock at an average price of $32.34. The remaining shares authorized for repurchase were repurchased in January 2019.”

Loans and Deposits

For the year ended December 31, 2018, total loans increased by $18.4 million, or 0.6%, to $3.31 billion, compared to December 31, 2017. The net increase in our loans was comprised of increases of $90.2 million of commercial loans, $31.9 million of construction loans and $7.6 million of municipal loans, partially offset by decreases of $71.0 million of commercial real estate loans, $29.3 million of loans to individuals and $10.8 million of 1-4 family loans.

Nonperforming assets increased during the year ended December 31, 2018 by $32.4 million, or 309.7%, to $42.9 million, or 0.70% of total assets, compared to $10.5 million, or 0.16% of total assets at December 31, 2017, primarily due to the addition of four commercial real estate loans to nonaccrual status during the year, one of which was added during the fourth quarter.

During the year ended December 31, 2018, the allowance for loan losses increased by $6.2 million, or 30.0%, to $27.0 million, or 0.82% of total loans, compared to 0.63% of total loans at December 31, 2017. The increase in the allowance was primarily the result of additional provision recorded on the commercial real estate loans placed on nonaccrual status.

During the year ended December 31, 2018, deposits, net of brokered deposits, decreased $270.8 million, or 6.1%, compared to December 31, 2017, due primarily to the decrease in public fund deposits of $221.7 million.

Net Interest Income and Net Interest Margin for the Three Months Ended December 31, 2018

Net interest income increased $4.1 million, or 10.7%, to $42.4 million for the three months ended December 31, 2018, compared to $38.3 million for the same period in 2017. The increase in net interest income was the result of a $7.9 million increase in interest income primarily from our loan portfolio, partially offset by an increase in interest expense of $3.8 million compared to the same period in 2017. The increase in interest expense related directly to our deposits and was partially offset by a decrease in interest expense on our Federal Home Loan Bank (“FHLB”) borrowings.

For the three months ended December 31, 2018, our net interest margin (FTE) increased to 3.21%, compared to 3.12% for the same period in 2017. The increase in net interest margin (FTE) was due primarily to the change in the mix of earning assets during 2018 as a result of the acquisition of Diboll State Bancshares, Inc. (“Diboll”) on November 30, 2017, as well as an increase in the average yields on earning assets, partially offset by higher average rates paid on interest bearing liabilities. The increases in average yields and rates paid were primarily due to rising interest rates during 2017 and 2018. For the three months ended December 31, 2018, our net interest spread (FTE) decreased to 2.86%, from 2.91% for the same period in 2017.

Net Interest Income and Net Interest Margin for the Year Ended December 31, 2018

Net interest income increased $28.1 million, or 19.5%, to $172.1 million for the year ended December 31, 2018, compared to $144.0 million for the same period in 2017. The increase in net interest income was the result of a $41.7 million increase in interest income primarily from our loan portfolio, partially offset by an increase in interest expense of $13.6 million compared to the same period in 2017. The increase in interest expense related directly to our deposits and was partially offset by a decrease in interest expense on our FHLB borrowings.

For the year ended December 31, 2018, our net interest margin (FTE) increased to 3.18%, compared to 3.07% for the same period in 2017. The increase in net interest margin (FTE) was due primarily to the change in the mix of earning assets as a result of the acquisition of Diboll during 2018, as well as an increase in the average yields on earning assets, partially offset by higher average rates paid on interest bearing liabilities. The increases in average yields and rates paid were primarily due to rising interest rates during 2017 and 2018. For the year ended December 31, 2018, our net interest spread (FTE) decreased slightly to 2.88%, from 2.89% for the same period in 2017.

Net Income for the Three Months Ended December 31, 2018

Net income increased $7.1 million, or 68.2%, for the three months ended December 31, 2018, to $17.4 million compared to the same period in 2017. The increase was the result of a $7.9 million increase in interest income, a $3.3 million decrease in income tax expense and a $1.0 million increase in noninterest income, partially offset by a $3.8 million increase in interest expense, a $1.2 million increase in provision for loan losses, and a $0.3 million increase in noninterest expense.

The majority of the increase in noninterest income was a result of an increase in deposit services and trust income largely related to the acquisition of Diboll. In connection with the adoption of Accounting Standards Update 2014-09 (“ASU 2014-09”) revenue recognition guidance effective January 1, 2018, debit card expense and brokerage service expense for the three months ended December 31, 2018, previously reported in ATM and debit card expense and other noninterest expense are now netted with deposit services income and brokerage services income, respectively. Due to the guidance under the modified retrospective method, prior periods have not been adjusted and therefore, are not comparable.

Income tax expense decreased $3.3 million for the three months ended December 31, 2018 compared to the same period in 2017, due to recording a $2.4 million discrete income tax expense in December 2017 related to the remeasurement of our net deferred tax asset and due to a lower tax rate effective for 2018, both in connection with the Tax Cuts and Jobs Act. The reduced tax rate effective for 2018 resulted in a lower effective tax rate of 12.7% for the three months ended December 31, 2018, compared to 36.2% for the same period in 2017. Excluding the net impact of discrete tax items, our effective tax rate was approximately 12.5% and 21.3% for the three months ended December 31, 2018 and 2017, respectively.

Net Income for the Year Ended December 31, 2018

Net income increased $19.8 million, or 36.5%, for the year ended December 31, 2018, to $74.1 million compared to the same period in 2017. The increase was primarily the result of a $41.7 million increase in interest income, a $6.0 million decrease in income tax expense and a $3.3 million increase in noninterest income, partially offset by a $13.8 million increase in noninterest expense, a $13.6 million increase in interest expense and a $3.8 million increase in provision for loan losses.

Excluding net (loss) gain on sale of securities available for sale, noninterest income increased $5.8 million, or 15.6%, for the year ended December 31, 2018, compared to the same period in 2017. Deposit services and trust income increased and were partially offset by a decrease in gain on sale of loans. The increase in both deposit services income and trust income was largely related to the acquisition of Diboll. With the adoption of ASU 2014-09, debit card expense and brokerage service expense for the year ended December 31, 2018, previously reported in ATM and debit card expense and other noninterest expense, are now netted with deposit services income and brokerage services income, respectively. Due to the guidance under the modified retrospective method, prior periods have not been adjusted and therefore, are not comparable.

Noninterest expense increased $13.8 million, or 12.9%, for the year ended December 31, 2018, to $120.1 million, compared to the same period in 2017. The increase in most of our noninterest expense categories was directly attributable to the integration of Diboll into our operations.

Income tax expense decreased $6.0 million for the year ended December 31, 2018 compared to the same period in 2017. The Tax Cuts and Jobs Act reduced the U.S. federal corporate tax rate from 35% to 21%. The decrease in the income tax expense and effective tax rate for the year ended December 31, 2018 was due to the lower corporate tax rate and a $0.8 million discrete tax benefit recorded during 2018 compared to a $2.4 million discrete income tax expense for the year ended December 31, 2017 associated with the remeasurement of our net deferred tax asset. The reduced tax rate effective for 2018 resulted in a lower effective tax rate of 12.1% compared to 22.9% for the same period in 2017. Excluding the net impact of discrete tax items, our effective tax rate was approximately 13.0% and 19.5% for the year ended December 31, 2018 and 2017, respectively.

Conference Call

Southside's management team will host a conference call to discuss its fourth quarter and year end December 31, 2018 financial results on Friday, February 1, 2019 at 9:00 a.m. CST. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 9677865 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 2018 Earnings Call.” To listen to the call via webcast, register at www.southside.com/about/investor-relations.

For those unable to listen to the conference call live, a recording will be available from approximately 11:30 a.m. CST February 1, 2019 through February 13, 2019 by accessing the company website, www.southside.com/about/investor-relations.

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% and 35% for the three months and year ended December 31, 2018 and 2017, respectively, 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.

In the following table we present, for the five quarterly periods ended December 31, 2018 and for the years ended December 31, 2018 and 2017, the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for 2018 and a 35% marginal tax rate for 2017 for interest earned on tax-exempt assets such as municipal loans and investment securities (dollars in thousands), along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE).

Non-GAAP Reconciliation































Three Months Ended

Years Ended


2018

2017

2018

2017


Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Dec. 31,

Dec. 31,
Net interest income (GAAP)

$
42,410


$
42,410


$
43,111


$
44,133


$
38,306


$
172,064


$
143,970

Tax equivalent adjustments:














Loans

599


590


583


582


1,125


2,354


4,313

Investment securities (tax-exempt)

1,933


1,801


1,651


1,619


3,049


7,004


13,197

Net interest income (FTE) ⁽¹⁾

44,942


44,801


45,345


46,334


42,480


181,422


161,480

Noninterest income

10,134


10,022


11,007


9,610


9,099


40,773


37,473

Nonrecurring income ⁽²⁾

(66
)

741


(304
)

827


483


1,198


(191
)
Total revenue

$
55,010


$
55,564


$
56,048


$
56,771


$
52,062


$
223,393


$
198,762
















Noninterest expense

$
30,196


$
28,962


$
29,274


$
31,667


$
29,933


$
120,099


$
106,335

Pre-tax amortization expense

(1,228
)

(1,279
)

(1,328
)

(1,378
)

(726
)

(5,213
)

(1,955
)
Nonrecurring expense ⁽³⁾

(264
)

(507
)

(1,287
)

(1,178
)

(3,479
)

(3,236
)

(4,394
)
Adjusted noninterest expense

$
28,704


$
27,176


$
26,659


$
29,111


$
25,728


$
111,650


$
99,986
















Efficiency ratio

54.70
%

51.11
%

49.54
%

53.35
%

53.73
%

52.16
%

55.16
%
Efficiency ratio (FTE) ⁽¹⁾

52.18
%

48.91
%

47.56
%

51.28
%

49.42
%

49.98
%

50.30
%















Average earning assets

$
5,558,052


$
5,654,566


$
5,700,133


$
5,891,352


$
5,395,212


$
5,699,985


$
5,254,431
















Net interest margin

3.03
%

2.98
%

3.03
%

3.04
%

2.82
%

3.02
%

2.74
%
Net interest margin (FTE) ⁽¹⁾

3.21
%

3.14
%

3.19
%

3.19
%

3.12
%

3.18
%

3.07
%















Net interest spread

2.68
%

2.65
%

2.75
%

2.80
%

2.60
%

2.72
%

2.56
%
Net interest spread (FTE) ⁽¹⁾

2.86
%

2.82
%

2.90
%

2.95
%

2.91
%

2.88
%

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, impairment of investments, 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.

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 reported in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.12 billion in assets as of December 31, 2018, that owns 100% of Southside Bank. Southside Bank currently has 59 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 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 Julie Shamburger at (903) 531-7134, or julie.shamburger@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this document and in other written material, press releases 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, 2017, 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.

CONTACT:
Julie Shamburger
(903) 531-7134
julie.shamburger@southside.com


SOUTHSIDE BANCSHARES, INC.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share data)





















As of

2018

2017

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,
ASSETS









Cash and due from banks
$
87,375


$
85,103


$
78,534


$
65,480


$
79,171

Interest earning deposits
23,884


70,685


138,685


183,241


111,541

Federal funds sold
9,460


18,284


14,850


14,090


7,980

Securities available for sale, at estimated fair value
1,989,436


1,939,277


2,037,994


2,062,539


1,538,755

Securities held to maturity, at carrying value
162,931


163,365


164,276


164,847


909,506

Federal Home Loan Bank stock, at cost
32,583


32,291


42,994


42,676


55,729

Loans held for sale
601


954


4,566


2,003


2,001

Loans
3,312,799


3,274,524


3,270,883


3,309,627


3,294,356

Less: Allowance for loan losses
(27,019
)

(26,092
)

(25,072
)

(24,220
)

(20,781
)
Net loans
3,285,780


3,248,432


3,245,811


3,285,407


3,273,575

Premises & equipment, net
135,972


133,939


132,578


131,625


133,640

Goodwill
201,116


201,116


201,246


201,246


201,246

Other intangible assets, net
17,779


19,009


20,287


21,615


22,993

Bank owned life insurance
98,160


97,611


97,059


100,963


100,368

Other assets
78,417


95,288


71,293


97,465


61,592

Total assets
$
6,123,494


$
6,105,354


$
6,250,173


$
6,373,197


$
6,498,097











LIABILITIES AND SHAREHOLDERS' EQUITY









Noninterest bearing deposits
$
994,680


$
1,033,572


$
1,038,907


$
1,055,423


$
1,037,401

Interest bearing deposits
3,430,350


3,519,940


3,469,834


3,586,474


3,478,046

Total deposits
4,425,030


4,553,512


4,508,741


4,641,897


4,515,447

Other borrowings
755,875


570,242


784,754


779,990


1,026,859

Subordinated notes, net of unamortized debt issuance costs
98,407


98,366


98,326


98,286


98,248

Trust preferred subordinated debentures, net of unamortized debt issuance costs
60,246


60,244


60,243


60,242


60,241

Other liabilities
52,645


70,484


46,299


46,386


43,162

Total liabilities
5,392,203


5,352,848


5,498,363


5,626,801


5,743,957

Shareholders' equity
731,291


752,506


751,810


746,396


754,140

Total liabilities and shareholders' equity
$
6,123,494


$
6,105,354


$
6,250,173


$
6,373,197


$
6,498,097


At or For the Three Months Ended

2018

2017

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,
Income Statement:









Total interest income
$
58,022


$
57,152


$
56,797


$
57,194


$
50,104

Total interest expense
15,612


14,742


13,686


13,061


11,798

Net interest income
42,410


42,410


43,111


44,133


38,306

Provision for loan losses
2,446


975


1,281


3,735


1,271

Net interest income after provision for loan losses
39,964


41,435


41,830


40,398


37,035

Noninterest income









Deposit services
6,325


6,317


6,261


6,179


5,940

Net gain (loss) on sale of securities available for sale
61


(741
)

(332
)

(827
)

(249
)
Gain on sale of loans
101


303


173


115


268

Trust income
1,573


1,568


1,931


1,760


1,156

Bank owned life insurance income
554


552


1,185


632


632

Brokerage services
499


532


506


450


632

Other
1,021


1,491


1,283


1,301


720

Total noninterest income
10,134


10,022


11,007


9,610


9,099

Noninterest expense









Salaries and employee benefits
17,823


17,628


16,633


18,559


15,316

Occupancy expense
3,475


3,396


3,360


3,583


3,327

Acquisition expense
118


437


1,026


832


3,474

Advertising, travel & entertainment
786


648


775


685


601

ATM and debit card expense
250


251


243


346


1,049

Professional fees
1,189


824


952


1,070


859

Software and data processing expense
1,057


977


939


1,023


882

Telephone and communications
477


354


478


538


444

FDIC insurance
455


435


484


497


442

Amortization expense on intangibles
1,228


1,279


1,328


1,378


726

Other
3,338


2,733


3,056


3,156


2,813

Total noninterest expense
30,196


28,962


29,274


31,667


29,933

Income before income tax expense
19,902


22,495


23,563


18,341


16,201

Income tax expense
2,521


2,192


3,360


2,090


5,870

Net income
$
17,381


$
20,303


$
20,203


$
16,251


$
10,331











Common share data:



Weighted-average basic shares outstanding
34,611


35,114


35,062


35,022


31,370

Weighted-average diluted shares outstanding
34,748


35,288


35,233


35,200


31,569

Shares outstanding end of period
33,725


35,160


35,084


35,053


35,000

Net income per common share









Basic
$
0.50


$
0.58


$
0.58


$
0.46


$
0.33

Diluted
0.50


0.58


0.57


0.46


0.33

Book value per common share
21.68


21.40


21.43


21.29


21.55

Cash dividend paid per common share
0.32


0.30


0.30


0.28


0.30











Selected Performance Ratios:









Return on average assets
1.14
%

1.30
%

1.30
%

1.02
%

0.70
%
Return on average shareholders’ equity
9.30


10.61


10.79


8.75


6.52

Average yield on earning assets (FTE) ⁽¹⁾
4.32


4.18


4.15


4.09


3.99

Average rate on interest bearing liabilities
1.46


1.36


1.25


1.14


1.08

Net interest spread (FTE) ⁽¹⁾
2.86


2.82


2.90


2.95


2.91

Net interest margin (FTE) ⁽¹⁾
3.21


3.14


3.19


3.19


3.12

Average earning assets to average interest bearing liabilities
131.07


131.12


130.22


127.29


124.73

Noninterest expense to average total assets
1.98


1.86


1.89


1.99


2.03

Efficiency ratio (FTE) ⁽¹⁾
52.18


48.91


47.56


51.28


49.42

(1)

These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information, including a reconciliation to GAAP.


At or For the Years Ended

December 31,

2018

2017
Income Statement:



Total interest income
$
229,165


$
187,474

Total interest expense
57,101


43,504

Net interest income
172,064


143,970

Provision for loan losses
8,437


4,675

Net interest income after provision for loan losses
163,627


139,295

Noninterest income



Deposit services
25,082


21,785

Net (loss) gain on sale of securities available for sale
(1,839
)

625

Gain on sale of loans
692


1,821

Trust income
6,832


3,818

Bank owned life insurance income
2,923


2,537

Brokerage services
1,987


2,422

Other
5,096


4,465

Total noninterest income
40,773


37,473

Noninterest expense



Salaries and employee benefits
70,643


60,779

Occupancy expense
13,814


12,068

Acquisition expense
2,413


4,352

Advertising, travel & entertainment
2,894


2,219

ATM and debit card expense
1,090


3,889

Professional fees
4,035


3,844

Software and data processing expense
3,996


3,027

Telephone and communications
1,847


1,905

FDIC insurance
1,871


1,769

Amortization expense on intangibles
5,213


1,955

Other
12,283


10,528

Total noninterest expense
120,099


106,335

Income before income tax expense
84,301


70,433

Income tax expense
10,163


16,121

Net income
$
74,138


$
54,312

Common share data:


Weighted-average basic shares outstanding
34,951


29,841

Weighted-average diluted shares outstanding
35,116


30,047

Net income per common share



Basic
$
2.12


$
1.82

Diluted
2.11


1.81

Book value per common share
21.68


21.55

Cash dividend paid per common share
1.20


1.11



Selected Performance Ratios:



Return on average assets
1.19
%

0.96
%
Return on average shareholders’ equity
9.87


9.65

Average yield on earning assets (FTE) ⁽¹⁾
4.18


3.90

Average yield on interest bearing liabilities
1.30


1.01

Net interest spread (FTE) ⁽¹⁾
2.88


2.89

Net interest margin (FTE) ⁽¹⁾
3.18


3.07

Average earning assets to average interest bearing liabilities
129.89


122.42

Noninterest expense to average total assets
1.93


1.88

Efficiency ratio (FTE) ⁽¹⁾
49.98


50.30

(1)

These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information, including a reconciliation to GAAP.


Southside Bancshares, Inc.

Selected Financial Data (unaudited)

(dollars in thousands)











Three Months Ended

2018

2017

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,
Nonperforming assets:
$
42,906


$
39,638


$
42,423


$
42,444


$
10,472

Nonaccrual loans ⁽¹⁾
35,770


32,526


35,351


34,545


2,937

Accruing loans past due more than 90 days ⁽¹⁾
–


–


7


4


1

Restructured loans ⁽²⁾
5,930


5,699


5,860


5,839


5,767

Other real estate owned
1,206


1,413


1,137


2,014


1,613

Repossessed assets
–


–


68


42


154











Asset Quality Ratios:









Nonaccruing loans to total loans
1.08
%

0.99
%

1.08
%

1.04
%

0.09
%
Allowance for loan losses to nonaccruing loans
75.54


80.22


70.92


70.11


707.56

Allowance for loan losses to nonperforming assets
62.97


65.83


59.10


57.06


198.44

Allowance for loan losses to total loans
0.82


0.80


0.77


0.73


0.63

Nonperforming assets to total assets
0.70


0.65


0.68


0.67


0.16

Net charge-offs (recoveries) to average loans
0.18


(0.01
)

0.05


0.04


0.05











Capital Ratios:









Shareholders’ equity to total assets
11.94


12.33


12.03


11.71


11.61

Average shareholders’ equity to average total assets
12.23


12.28


12.06


11.69


10.75

(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 $3.1 million, $3.2 million, $2.9 million, $2.9 million, and $2.9 million in PCI loans restructured as of December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented:


Three Months Ended

2018

2017

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,
Real Estate Loans:









Construction
$
507,732


$
484,254


$
487,286


$
474,791


$
475,867

1-4 Family Residential
794,499


791,274


791,359


797,088


805,341

Commercial
1,194,118


1,218,714


1,245,936


1,285,591


1,265,159

Commercial Loans
356,649


322,873


282,723


281,901


266,422

Municipal Loans
353,370


344,792


345,595


342,404


345,798

Loans to Individuals
106,431


112,617


117,984


127,852


135,769

Total Loans
$
3,312,799


$
3,274,524


$
3,270,883


$
3,309,627


$
3,294,356

The “Average Balances with Average Yields and Rates” 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 (dollars in thousands) 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" for more information.


Average Balances with Average Yields and Rates

(unaudited)

Three Months Ended

December 31, 2018

September 30, 2018

Avg Balance

Interest

Avg Yield/Rate

Avg Balance

Interest

Avg Yield/Rate
ASSETS











Loans ⁽¹⁾
$
3,289,840


$
41,320


4.98
%

$
3,286,664


$
40,396


4.88
%
Loans held for sale
633


8


5.01
%

1,841


25


5.39
%
Securities:











Investment securities (taxable) ⁽²⁾
13,066


103


3.13
%

4,285


36


3.33
%
Investment securities (tax-exempt) ⁽²⁾
722,162


7,828


4.30
%

795,397


8,132


4.06
%
Mortgage-backed and related securities ⁽²⁾
1,434,982


10,394


2.87
%

1,418,114


10,086


2.82
%
Total securities
2,170,210


18,325


3.35
%

2,217,796


18,254


3.27
%
FHLB stock, at cost, and equity investments
44,304


393


3.52
%

54,216


377


2.76
%
Interest earning deposits
36,098


411


4.52
%

77,977


414


2.11
%
Federal funds sold
16,967


97


2.27
%

16,072


77


1.90
%
Total earning assets
5,558,052


60,554


4.32
%

5,654,566


59,543


4.18
%
Cash and due from banks
79,544






78,623





Accrued interest and other assets
452,257






477,737





Less: Allowance for loan losses
(26,231
)





(25,646
)




Total assets
$
6,063,622






$
6,185,280





LIABILITIES AND SHAREHOLDERS’ EQUITY











Savings deposits
$
361,407


257


0.28
%

$
362,405


258


0.28
%
Time deposits
1,123,101


5,170


1.83
%

1,173,672


4,744


1.60
%
Interest bearing demand deposits
1,968,786


4,908


0.99
%

1,953,904


4,495


0.91
%
Total interest bearing deposits
3,453,294


10,335


1.19
%

3,489,981


9,497


1.08
%
FHLB borrowings
612,134


3,066


1.99
%

654.153


3.108


1.88
%
Subordinated notes, net of unamortized debt issuance costs
98,385


1,431


5.77
%

98,346


1,423


5.74
%
Trust preferred subordinated debentures, net of unamortized debt issuance costs
60,245


699


4.60
%

60,244


684


4.50
%
Other borrowings
16,405


81


1.96
%

9,651


30


1.23
%
Total interest bearing liabilities
4,240,463


15,612


1.46
%

4,312,375


14,742


1.36
%
Noninterest bearing deposits
1,034,556






1,064,797





Accrued expenses and other liabilities
47,234






48,699





Total liabilities
5,322,253






5,425,871





Shareholders’ equity
741,369






759,409





Total liabilities and shareholders’ equity
$
6,063,622






$
6,185,280





Net interest income (FTE)


$
44,942






$
44,801



Net interest margin (FTE)




3.21
%





3.14
%
Net interest spread (FTE)




2.86
%





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 December 31, 2018 and September 30, 2018, loans totaling $35.8 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.


Average Balances with Average Yields and Rates

(unaudited)

Three Months Ended

June 30, 2018

March 31, 2018

Avg Balance

Interest

Avg Yield/Rate

Avg Balance

Interest

Avg Yield/Rate
ASSETS











Loans ⁽¹⁾
$
3,285,756


$
39,865


4.87
%

$
3,300,506


$
39,401


4.84
%
Loans held for sale
1,794


19


4.25
%

1,543


11


2.89
%
Securities:











Investment securities (taxable) ⁽²⁾
6,891


51


2.97
%

39,332


227


2.34
%
Investment securities (tax-exempt) ⁽²⁾
802,611


8,004


4.00
%

805,091


8,000


4.03
%
Mortgage-backed and related securities ⁽²⁾
1,439,810


10,210


2.84
%

1,557,140


10,894


2.84
%
Total securities
2,249,312


18,265


3.26
%

2,401,563


19,121


3.23
%
FHLB stock, at cost, and equity investments
54,729


411


3.01
%

67,000


414


2.51
%
Interest earning deposits
92,291


400


1.74
%

107,488


399


1.51
%
Federal funds sold
16,251


71


1.75
%

13,252


49


1.50
%
Total earning assets
5,700,133


59,031


4.15
%

5,891,352


59,395


4.09
%
Cash and due from banks
75,560






78,031





Accrued interest and other assets
473,142






493,974





Less: Allowance for loan losses
(24,558
)





(21,005
)




Total assets
$
6,224,277






$
6,442,352





LIABILITIES AND SHAREHOLDERS’ EQUITY











Savings deposits
$
360,340


208


0.23
%

$
353,770


184


0.21
%
Time deposits
1,175,230


4,303


1.47
%

1,170,024


3,895


1.35
%
Interest bearing demand deposits
1,981,427


4,070


0.82
%

2,009,154


3,372


0.68
%
Total interest bearing deposits
3,516,997


8,581


0.98
%

3,532,948


7,451


0.86
%
FHLB borrowings
692,386


3,007


1.74
%

928,677


3,632


1.59
%
Subordinated notes, net of unamortized debt issuance costs
98,306


1,407


5.74
%

98,267


1,398


5.77
%
Trust preferred subordinated debentures, net of unamortized debt issuance costs
60,243


658


4.38
%

60,241


569


3.83
%
Other borrowings
9,283


33


1.43
%

8,103


11


0.55
%
Total interest bearing liabilities
4,377,215


13,686


1.25
%

4,628,236


13,061


1.14
%
Noninterest bearing deposits
1,045,298






1,016,707





Accrued expenses and other liabilities
50,843






44,015





Total liabilities
5,473,356






5,688,958





Shareholders’ equity
750,921






753,394





Total liabilities and shareholders’ equity
$
6,224,277






$
6,442,352





Net interest income (FTE)


$
45,345






$
46,334



Net interest margin (FTE)




3.19
%





3.19
%
Net interest spread (FTE)




2.90
%





2.95
%

(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 June 30, 2018 and March 31, 2018, loans totaling $35.4 million and $34.5 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.


Average Balances with Average Yields and Rates

(unaudited)

Three Months Ended

December 31, 2017

Avg Balance

Interest

Avg Yield/Rate
ASSETS





Loans ⁽¹⁾
$
2,897,444


$
34,070


4.67
%
Loans held for sale
2,285


22


3.82
%
Securities:





Investment securities (taxable) ⁽²⁾
51,678


237


1.82
%
Investment securities (tax-exempt) ⁽²⁾
775,681


9,197


4.70
%
Mortgage-backed and related securities ⁽²⁾
1,461,159


9,931


2.70
%
Total securities
2,288,518


19,365


3.36
%
FHLB stock, at cost, and equity investments
67,127


380


2.25
%
Interest earning deposits
133,007


418


1.25
%
Federal funds sold
6,831


23


1.34
%
Total earning assets
5,395,212


54,278


3.99
%
Cash and due from banks
60,590





Accrued interest and other assets
410,528





Less: Allowance for loan losses
(19,963
)




Total assets
$
5,846,367





LIABILITIES AND SHAREHOLDERS’ EQUITY





Savings deposits
$
293,392


134


0.18
%
Time deposits
1,031,008


3,178


1.22
%
Interest bearing demand deposits
1,696,239


2,585


0.60
%
Total interest bearing deposits
3,020,639


5,897


0.77
%
FHLB borrowings
1,137,373


3,935


1.37
%
Subordinated notes, net of unamortized debt issuance costs
98,229


1,429


5.77
%
Trust preferred subordinated debentures, net of unamortized debt issuance costs
60,240


532


3.50
%
Other borrowings
9,157


5


0.22
%
Total interest bearing liabilities
4,325,638


11,798


1.08
%
Noninterest bearing deposits
846,632





Accrued expenses and other liabilities
45,613





Total liabilities
5,217,883





Shareholders’ equity
628,484





Total liabilities and shareholders’ equity
$
5,846,367





Net interest income (FTE)


$
42,480



Net interest margin (FTE)




3.12
%
Net interest spread (FTE)




2.91
%

(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 December 31, 2017, loans totaling $2.9 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.


Average Balances with Average Yields and Rates

(unaudited)

Years Ended

December 31, 2018

December 31, 2017

Avg Balance

Interest

Avg Yield/Rate

Avg Balance

Interest

Avg Yield/Rate
ASSETS











Loans ⁽¹⁾
$
3,290,651


$
160,982


4.89
%

$
2,666,265


$
121,769


4.57
%
Loans held for sale
1,451


63


4.34
%

5,058


177


3.50
%
Securities:











Investment securities (taxable) ⁽²⁾
15,790


417


2.64
%

51,654


939


1.82
%
Investment securities (tax-exempt) ⁽²⁾
781,127


31,964


4.09
%

765,854


37,726


4.93
%
Mortgage-backed and related securities ⁽²⁾
1,462,055


41,584


2.84
%

1,543,826


41,361


2.68
%
Total securities
2,258,972


73,965


3.27
%

2,361,334


80,026


3.39
%
FHLB stock, at cost, and equity investments
54,998


1,595


2.90
%

66,855


1,306


1.95
%
Interest earning deposits
78,266


1,624


2.07
%

148,924


1,634


1.10
%
Federal funds sold
15,647


294


1.88
%

5,995


72


1.20
%
Total earning assets
5,699,985


238,523


4.18
%

5,254,431


204,984


3.90
%
Cash and due from banks
77,946






54,590





Accrued interest and other assets
473,639






369,872





Less: Allowance for loan losses
(24,378
)





(19,042
)




Total assets
$
6,227,192






$
5,659,851





LIABILITIES AND SHAREHOLDERS’ EQUITY











Savings deposits
$
359,509


907


0.25
%

$
267,345


464


0.17
%
Time deposits
1,160,423


18,112


1.56
%

990,553


11,006


1.11
%
Interest bearing demand deposits
1,978,140


16,845


0.85
%

1,645,557


9,266


0.56
%
Total interest bearing deposits
3,498,072


35,864


1.03
%

2,903,455


20,736


0.71
%
FHLB borrowings
720,785


12,813


1.78
%

1,222,033


15,106


1.24
%
Subordinated notes, net of unamortized debt issuance costs
98,327


5,659


5.76
%

98,172


5,633


5.74
%
Trust preferred subordinated debentures, net of unamortized debt issuance costs
60,243


2,610


4.33
%

60,238


2,013


3.34
%
Other borrowings
10,880


155


1.42
%

8,120


16


0.20
%
Total interest bearing liabilities
4,388,307


57,101


1.30
%

4,292,018


43,504


1.01
%
Noninterest bearing deposits
1,040,447






761,370





Accrued expenses and other liabilities
47,176






43,440





Total liabilities
5,475,930






5,096,828





Shareholders’ equity
751,262






563,023





Total liabilities and shareholders’ equity
$
6,227,192






$
5,659,851





Net interest income (FTE)


$
181,422






$
161,480



Net interest margin (FTE)




3.18
%





3.07
%
Net interest spread (FTE)




2.88
%





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 December 31, 2018 and 2017, loans totaling $35.8 million and $2.9 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.

Company Name:	Southside Bancshares Inc.
Stock Symbol:	SBSI
Market:	NASDAQ
Website:	southside.com

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