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Press Release

Southside Bancshares, Inc. Announces Financial Results for the Three and Six Months Ended June 30, 2018

Company Release - 7/27/2018 6:30 AM ET

TYLER, Texas, July 27, 2018 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three and six months ended June 30, 2018.

Southside reported net income of $20.2 million for the three months ended June 30, 2018, an increase of $5.7 million, or 39.5%, compared to $14.5 million for the same period in 2017.  Southside reported net income of $36.5 million for the six months ended June 30, 2018, an increase of $7.0 million, or 23.7%, compared to $29.5 million for the same period in 2017.

Earnings per diluted common share increased $0.08, or 16.3%, to $0.57 for the three months ended June 30, 2018, from $0.49 for the same period in 2017.  Earnings per diluted common share increased $0.04, or 4.0%, to $1.04 for the six months ended June 30, 2018, from $1.00 for the same period in 2017.

The return on average shareholders’ equity for the six months ended June 30, 2018 was 9.77%, compared to 11.13% for the same period in 2017.  The return on average assets was 1.16% for the six months ended June 30, 2018, compared to 1.06% for the same period in 2017.

“Southside experienced an excellent second quarter highlighted by our financial results and the completion of the Diboll Bancshares, Inc. integration,” stated Lee R. Gibson, President and Chief Executive Officer of Southside.  “We reported record net income during the second quarter of $20.2 million, an efficiency ratio below 50% and maintained the net interest margin on a linked quarter basis at 3.19%, notwithstanding a slight reduction in average loans.  During the quarter we recorded acquisition costs related to the Diboll transaction of $1.0 million, a $332,000 loss on the sale of available for sale securities and a death benefit of $636,000 in bank owned life insurance income.  We expect to realize substantially all of the efficiencies and the associated cost savings of the Diboll integration during the third quarter.”

“During the second quarter loan payoffs exceeded loans funded by $39 million.  Our loan pipeline looks promising for the remainder of the year as a number of loans are expected to fund; however, we expect additional payoffs that will offset a portion of the new funding's.  Economic conditions in East Texas remain solid and the Austin and DFW economies, fueled by company relocations and overall population growth, continue to be robust.”

Loans and Deposits

For the six months ended June 30, 2018, total loans decreased by $23.5 million, or 0.7%, to $3.27 billion, compared to December 31, 2017.  The net decrease in our loans was comprised primarily of decreases of $19.2 million of commercial real estate loans, $17.8 million of loans to individuals, and $14.0 million of 1-4 family residential loans, partially offset by increases of $16.3 million of commercial loans and $11.4 million of construction loans.  Energy loans totaled 1.55% of the loan portfolio at June 30, 2018, compared to 1.50% at December 31, 2017.

Nonperforming assets increased during the six months ended June 30, 2018 by $32.0 million, or 305.1%, to $42.4 million, or 0.68% of total assets, compared to $10.5 million, or 0.16% of total assets at December 31, 2017, primarily due to the addition of two commercial real estate relationships consisting of three loans to nonaccrual status during the first quarter.

During the six months ended June 30, 2018, the allowance for loan losses increased by $4.3 million, or 20.6%, to $25.1 million, or 0.77% 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 in the first quarter.

During the six months ended June 30, 2018, deposits, net of brokered deposits, decreased $58.3 million, or 1.3%, compared to December 31, 2017, due primarily to the decrease in public fund deposits of $42.8 million during the six months ended June 30, 2018, compared to December 31, 2017.

Net Interest Income for the Three Months Ended June 30, 2018

Net interest income increased $7.7 million, or 21.7%, to $43.1 million for the three months ended June 30, 2018, compared to $35.4 million for the same period in 2017.  The increase in net interest income was the result of a $10.8 million increase in interest income from our loan portfolio, partially offset by an increase in interest expense of $3.1 million associated with interest expense on our deposits, compared to the same period in 2017.

For the three months ended June 30, 2018, our net interest margin (FTE) increased to 3.19%, compared to 3.07% for the same period in 2017.  The increase in net interest margin (FTE) was due primarily to an increase in the average balances and mix of earning assets as a direct result of the acquisition of Diboll and an increase in the average yields on earning assets, partially offset by higher average rates paid on interest bearing liabilities.  The increase in average rates paid on interest bearing liabilities was primarily due to rising interest rates during 2017 and 2018.  For the three months ended June 30, 2018, our net interest spread (FTE) increased slightly to 2.90%, compared to 2.89% for the same period in 2017.  The net interest spread (FTE) on a linked quarter basis decreased from 2.95% for the three months ended March 31, 2018, to 2.90% for the three months ended June 30, 2018.  The net interest margin (FTE) remained at 3.19% on a linked quarter basis.

Net Interest Income for the Six Months Ended June 30, 2018

Net interest income increased $16.5 million, or 23.4%, to $87.2 million for the six months ended June 30, 2018, compared to $70.7 million for the same period in 2017.  The increase in net interest income was the result of a $23.1 million increase in interest income primarily from our loan portfolio, partially offset by an increase in interest expense of $6.6 million associated with interest expense on our deposits, compared to the same period in 2017.

For the six months ended June 30, 2018, our net interest margin (FTE) increased to 3.19%, compared to 3.07% for the same period in 2017.  The increase in net interest margin (FTE) was due primarily to an increase in the average balances and mix of earning assets as a direct result of the acquisition of Diboll and an increase in the average yields on earning assets, partially offset by higher average rates paid on interest bearing liabilities.  The increase in average rates paid on interest bearing liabilities was primarily due to rising interest rates during 2017 and 2018.  For the six months ended June 30, 2018, our net interest spread (FTE) increased slightly to 2.92%, compared to 2.91% for the same period in 2017.

Net Income for the Three Months Ended June 30, 2018

Net income increased $5.7 million, or 39.5%, for the three months ended June 30, 2018, to $20.2 million compared to the same period in 2017.  The increase was primarily the result of a $10.8 million increase in interest income and a $1.7 million increase in noninterest income, partially offset by a $3.7 million increase in noninterest expense and a $3.1 million increase in interest expense.

Trust income, deposit services and bank owned life insurance income increased and were partially offset by an increase in net loss on sale of securities and a decrease in gain on sale of loans.  The increase in both trust income and deposit services income was largely related to the acquisition of Diboll.  The increase in our bank owned life insurance income was due to death benefits recorded for a retired covered officer.  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 June 30, 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 $3.7 million, or 14.6%, for the three months ended June 30, 2018, compared to the same period in 2017.  The increase in most of our noninterest expense categories is directly attributable to the integration of Diboll into our operations.

Income tax expense for the three months ended June 30, 2018 remained relatively unchanged although net income increased.  This was attributable to the reduced tax rate under the Tax Cuts and Jobs Act resulting in a lower effective tax rate of 14.3% compared to 18.8% for the same period in 2017.

Net Income for the Six Months Ended June 30, 2018

Net income increased $7.0 million, or 23.7%, for the six months ended June 30, 2018, to $36.5 million compared to the same period in 2017.  The increase was primarily the result of a $23.1 million increase in interest income, a $1.7 million increase in noninterest income and a $0.9 million decrease in income tax expense, partially offset by a $9.5 million increase in noninterest expense, a $6.6 million increase in interest expense and a $2.6 million increase in provision for loan losses.

Excluding net (loss) gain on sale of securities, noninterest income increased $3.1 million, or 16.3%, for the six months ended June 30, 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 six months ended June 30, 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 $9.5 million, or 18.6%, for the six months ended June 30, 2018, to $60.9 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.

The decrease in income tax expense for the six months ended June 30, 2018  was attributable to the reduced tax rate under the Tax Cuts and Jobs Act resulting in a lower effective tax rate of 13.0% compared to 17.8% for the same period in 2017.

Conference Call

Southside's management team will host a conference call to discuss its second quarter 2018 financial results on Friday, July 27, 2018 at 9:00 a.m. CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 7518659 or by identifying “Southside Bancshares, Inc., Second Quarter 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 3:00 p.m. CDT July 27, 2018 through August 7, 2018 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 and six months ended June 30, 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 of intangibles and certain nonrecurring expense by the sum of net interest income (FTE) and noninterest income, excluding gains (losses) on sales of available for sale securities 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 June 30, 2018 and for the six months ended June 30, 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 the 2018 quarterly and six month periods and a 35% marginal tax rate for the 2017 quarterly and six month periods 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 Six Months Ended
  2018 2017 2018 2017
  June 30, Mar. 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
Net interest income (GAAP) $43,111  $44,133  $38,306  $34,960  $35,424  $87,244  $70,704 
Tax equivalent adjustments:              
Loans 583  582  1,125  1,103  1,050  1,165  2,085 
Investment securities (tax-exempt) 1,651  1,619  3,049  3,544  3,229  3,270  6,604 
Net interest income (FTE) (1) 45,345  46,334  42,480  39,607  39,703  91,679  79,393 
Noninterest income 11,007  9,610  9,099  9,408  9,293  20,617  18,966 
Nonrecurring income (2) (304) 827  483  (627) 75  523  (47)
Total revenue $56,048  $56,771  $52,062  $48,388  $49,071  $112,819  $98,312 
               
Noninterest expense $29,274  $31,667  $29,933  $25,007  $25,537  $60,941  $51,395 
Pre-tax amortization expense (1,328) (1,378) (726) (388) (410) (2,706) (841)
Nonrecurring expense (3) (1,287) (1,178) (3,479) (432) (466) (2,465) (483)
Adjusted noninterest expense $26,659  $29,111  $25,728  $24,187  $24,661  $55,770  $50,071 
               
Efficiency ratio 49.54% 53.35% 53.73% 55.30% 55.06% 51.46% 55.87%
Efficiency ratio (FTE) (1) 47.56% 51.28% 49.42% 49.99% 50.26% 49.43% 50.93%
               
Average earning assets $5,700,133  $5,891,352  $5,395,212  $5,199,349  $5,192,897  $5,795,214  $5,210,871 
               
Net interest margin 3.03% 3.04% 2.82% 2.67% 2.74% 3.04% 2.74%
Net interest margin (FTE) (1) 3.19% 3.19% 3.12% 3.02% 3.07% 3.19% 3.07%
               
Net interest spread 2.75% 2.80% 2.60% 2.47% 2.56% 2.77% 2.58%
Net interest spread (FTE) (1) 2.90% 2.95% 2.91% 2.82% 2.89% 2.92% 2.91%

(1)   These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(2)   Includes net gains and losses on sale of available for sale securities, 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.
(3)   Includes acquisition expenses and foreclosure expenses.

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 under Results of Operations.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.25 billion in assets as of June 30, 2018, that owns 100% of Southside Bank.  Southside Bank currently has 59 branches in Texas and operates a network of 84 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 [email protected].

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.

 SOUTHSIDE BANCSHARES, INC.
 CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
 (In thousands, except per share data)
          
          
 As of
 2018 2017
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
ASSETS         
Cash and due from banks$78,534  $65,480  $79,171  $57,947  $56,033 
Interest earning deposits138,685  183,241  111,541  120,996  175,039 
Federal funds sold14,850  14,090  7,980  5,570  4,760 
Securities available for sale, at estimated fair value2,037,994  2,062,539  1,538,755  1,292,072  1,397,811 
Securities held to maturity, at carrying value164,276  164,847  909,506  909,844  925,538 
Federal Home Loan Bank stock, at cost42,994  42,676  55,729  61,845  61,561 
Loans held for sale4,566  2,003  2,001  2,177  3,036 
Loans3,270,883  3,309,627  3,294,356  2,682,766  2,610,198 
Less: Allowance for loan losses(25,072) (24,220) (20,781) (19,871) (19,241)
Net loans3,245,811  3,285,407  3,273,575  2,662,895  2,590,957 
Premises & equipment, net132,578  131,625  133,640  107,099  105,938 
Goodwill201,246  201,246  201,246  91,520  91,520 
Other intangible assets, net20,287  21,615  22,993  3,379  3,767 
Bank owned life insurance97,059  100,963  100,368  99,616  99,011 
Other assets71,293  97,465  61,592  69,470  63,511 
Total assets$6,250,173  $6,373,197  $6,498,097  $5,484,430  $5,578,482 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,038,907  $1,055,423  $1,037,401  $781,701  $757,353 
Interest bearing deposits3,469,834  3,586,474  3,478,046  2,782,474  2,866,720 
Total deposits4,508,741  4,641,897  4,515,447  3,564,175  3,624,073 
Other borrowings784,754  779,990  1,026,859  1,151,639  1,186,506 
Subordinated notes, net of unamortized debt issuance costs98,326  98,286  98,248  98,209  98,171 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,243  60,242  60,241  60,240  60,238 
Other liabilities46,299  46,386  43,162  54,144  62,429 
Total liabilities5,498,363  5,626,801  5,743,957  4,928,407  5,031,417 
Shareholders' equity751,810  746,396  754,140  556,023  547,065 
Total liabilities and shareholders' equity$6,250,173  $6,373,197  $6,498,097  $5,484,430  $5,578,482 


 At or For the Three Months Ended
 2018 2017
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Income Statement:         
Total interest income$56,797  $57,194  $50,104  $46,473  $46,009 
Total interest expense13,686  13,061  11,798  11,513  10,585 
Net interest income43,111  44,133  38,306  34,960  35,424 
Provision for loan losses1,281  3,735  1,271  960  1,346 
Net interest income after provision for loan losses41,830  40,398  37,035  34,000  34,078 
Noninterest income         
Deposit services6,261  6,179  5,940  5,476  5,255 
Net (loss) gain on sale of securities available for sale(332) (827) (249) 627  (75)
Gain on sale of loans173  115  268  347  505 
Trust income1,931  1,760  1,156  873  899 
Bank owned life insurance income1,185  632  632  636  635 
Brokerage services506  450  632  561  682 
Other1,283  1,301  720  888  1,392 
Total noninterest income11,007  9,610  9,099  9,408  9,293 
Noninterest expense         
Salaries and employee benefits16,633  18,559  15,316  14,472  14,984 
Occupancy expense3,360  3,583  3,327  2,981  2,897 
Acquisition expense1,026  832  3,474  405  473 
Advertising, travel & entertainment775  685  601  487  548 
ATM and debit card expense243  346  1,049  1,024  889 
Professional fees952  1,070  859  996  1,050 
Software and data processing expense939  1,023  882  732  688 
Telephone and communications478  538  444  459  476 
FDIC insurance484  497  442  441  445 
Amortization expense on intangibles1,328  1,378  726  388  410 
Other3,056  3,156  2,813  2,622  2,677 
Total noninterest expense29,274  31,667  29,933  25,007  25,537 
Income before income tax expense23,563  18,341  16,201  18,401  17,834 
Income tax expense3,360  2,090  5,870  3,890  3,353 
Net income$20,203  $16,251  $10,331  $14,511  $14,481 
          
Common share data:   
Weighted-average basic shares outstanding35,062  35,022  31,370  29,370  29,318 
Weighted-average diluted shares outstanding35,233  35,200  31,569  29,570  29,519 
Shares outstanding end of period35,084  35,053  35,000  29,433  29,344 
Net income per common share         
Basic$0.58  $0.46  $0.33  $0.49  $0.49 
Diluted0.57  0.46  0.33  0.49  0.49 
Book value per common share21.43  21.29  21.55  18.89  18.64 
Cash dividend paid per common share0.30  0.28  0.30  0.28  0.28 
          
Selected Performance Ratios:         
Return on average assets1.30% 1.02% 0.70% 1.03% 1.04%
Return on average shareholders’ equity10.79  8.75  6.52  10.38  10.70 
Average yield on earning assets (FTE) (1)4.15  4.09  3.99  3.90  3.88 
Average rate on interest bearing liabilities1.25  1.14  1.08  1.08  0.99 
Net interest spread (FTE) (1)2.90  2.95  2.91  2.82  2.89 
Net interest margin (FTE) (1)3.19  3.19  3.12  3.02  3.07 
Average earning assets to average interest bearing liabilities130.22  127.29  124.73  123.32  121.57 
Noninterest expense to average total assets1.89  1.99  2.03  1.77  1.83 
Efficiency ratio (FTE) (1)47.56  51.28  49.42  49.99  50.26 

(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
Six Months Ended
 June 30,
 2018 2017
Income Statement:   
Total interest income$113,991  $90,897 
Total interest expense26,747  20,193 
Net interest income87,244  70,704 
Provision for loan losses5,016  2,444 
Net interest income after provision for loan losses82,228  68,260 
Noninterest income   
Deposit services12,440  10,369 
Net (loss) gain on sale of securities available for sale(1,159) 247 
Gain on sale of loans288  1,206 
Trust income3,691  1,789 
Bank owned life insurance income1,817  1,269 
Brokerage services956  1,229 
Other2,584  2,857 
Total noninterest income20,617  18,966 
Noninterest expense   
Salaries and employee benefits35,192  30,991 
Occupancy expense6,943  5,760 
Acquisition expense1,858  473 
Advertising, travel & entertainment1,460  1,131 
ATM and debit card expense589  1,816 
Professional fees2,022  1,989 
Software and data processing expense1,962  1,413 
Telephone and communications1,016  1,002 
FDIC insurance981  886 
Amortization expense on intangibles2,706  841 
Other6,212  5,093 
Total noninterest expense60,941  51,395 
Income before income tax expense41,904  35,831 
Income tax expense5,450  6,361 
Net income$36,454  $29,470 


Common share data:  
Weighted-average basic shares outstanding35,042  29,303 
Weighted-average diluted shares outstanding35,217  29,511 
Net income per common share                                    
Basic$   1.04  $1.01 
Diluted1.04  1.00 
Book value per common share21.43  18.64 
Cash dividend paid per common share0.58  0.53 


  
Selected Performance Ratios:   
Return on average assets1.16% 1.06%
Return on average shareholders’ equity                                               9.77  11.13 
Average yield on earning assets (FTE) (1)4.12  3.85 
Average yield on interest bearing liabilities1.20  0.94 
Net interest spread (FTE) (1)2.92  2.91 
Net interest margin (FTE) (1)3.19  3.07 
Average earning assets to average interest bearing liabilities128.72  120.80 
Noninterest expense to average total assets1.94  1.85 
Efficiency ratio (FTE) (1)49.43  50.93 

(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
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Nonperforming assets:$42,423  $42,444  $10,472  $9,119  $9,165 
Nonaccrual loans (1)35,351  34,545  2,937  3,095  3,034 
Accruing loans past due more than 90 days (1)7  4  1     
Restructured loans (2)5,860  5,839  5,767  5,725  5,884 
Other real estate owned1,137  2,014  1,613  298  233 
Repossessed assets68  42  154  1  14 
          
Asset Quality Ratios:         
Nonaccruing loans to total loans1.08% 1.04% 0.09% 0.12% 0.12%
Allowance for loan losses to nonaccruing loans70.92  70.11  707.56  642.04  634.18 
Allowance for loan losses to nonperforming assets59.10  57.06  198.44  217.91  209.94 
Allowance for loan losses to total loans0.77  0.73  0.63  0.74  0.74 
Nonperforming assets to total assets0.68  0.67  0.16  0.17  0.16 
Net charge-offs to average loans0.05  0.04  0.05  0.05  0.09 
          
Capital Ratios:         
Shareholders’ equity to total assets12.03  11.71  11.61  10.14  9.81 
Average shareholders’ equity to average total assets12.06  11.69  10.75  9.91  9.72 

(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 $2.9 million, $2.9 million, $2.9 million, $3.0 million, and $3.0 million in PCI loans restructured as of June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

Loan Portfolio Composition

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

 Three Months Ended
 2018 2017
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Real Estate Loans:         
Construction$487,286  $474,791  $475,867  $420,497  $386,853 
1-4 Family Residential791,359  797,088  805,341  609,159  615,405 
Commercial1,245,936  1,285,591  1,265,159  1,073,646  1,033,629 
Commercial Loans282,723  281,901  266,422  166,919  172,311 
Municipal Loans345,595  342,404  345,798  322,286  305,023 
Loans to Individuals117,984  127,852  135,769  90,259  96,977 
Total Loans$3,270,883  $3,309,627  $3,294,356  $2,682,766  $2,610,198 

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
 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 sale1,794  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 securities2,249,312  18,265  3.26% 2,401,563  19,121  3.23%
FHLB stock, at cost, and equity investments54,729  411  3.01% 67,000  414  2.51%
Interest earning deposits92,291  400  1.74% 107,488  399  1.51%
Federal funds sold16,251  71  1.75% 13,252  49  1.50%
Total earning assets5,700,133  59,031  4.15% 5,891,352  59,395  4.09%
Cash and due from banks75,560      78,031     
Accrued interest and other assets473,142      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 deposits1,175,230  4,303  1.47% 1,170,024  3,895  1.35%
Interest bearing demand deposits1,981,427  4,070  0.82% 2,009,154  3,372  0.68%
Total interest bearing deposits3,516,997  8,581  0.98% 3,532,948  7,451  0.86%
FHLB borrowings692,386  3,007  1.74% 928,677  3,632  1.59%
Subordinated notes, net of unamortized debt issuance costs98,306  1,407  5.74% 98,267  1,398  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,243  658  4.38% 60,241  569  3.83%
Other borrowings9,283  33  1.43% 8,103  11  0.55%
Total interest bearing liabilities4,377,215  13,686  1.25% 4,628,236  13,061  1.14%
Noninterest bearing deposits1,045,298      1,016,707     
Accrued expenses and other liabilities50,843      44,015     
Total liabilities5,473,356      5,688,958     
Shareholders’ equity750,921      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 September 30, 2017
 Avg Balance Interest Avg
Yield/Rate
 Avg Balance Interest Avg
Yield/Rate
ASSETS           
Loans (1)$2,897,444  $34,070  4.67% $2,657,562  $30,378  4.54%
Loans held for sale2,285  22  3.82% 5,060  47  3.69%
Securities:           
Investment securities (taxable) (2)51,678  237  1.82% 11,085  58  2.08%
Investment securities (tax-exempt) (2)775,681  9,197  4.70% 758,828  9,214  4.82%
Mortgage-backed and related securities (2)1,461,159  9,931  2.70% 1,550,494  10,567  2.70%
Total securities2,288,518  19,365  3.36% 2,320,407  19,839  3.39%
FHLB stock, at cost, and equity investments67,127  380  2.25% 66,994  329  1.95%
Interest earning deposits133,007  418  1.25% 144,700  506  1.39%
Federal funds sold6,831  23  1.34% 4,626  21  1.80%
Total earning assets5,395,212  54,278  3.99% 5,199,349  51,120  3.90%
Cash and due from banks60,590      53,220     
Accrued interest and other assets410,528      360,073     
Less: Allowance for loan losses(19,963)     (19,556)    
Total assets$5,846,367      $5,593,086     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$293,392  134  0.18% $260,860  117  0.18%
Time deposits1,031,008  3,178  1.22% 988,380  2,878  1.16%
Interest bearing demand deposits1,696,239  2,585  0.60% 1,562,993  2,425  0.62%
Total interest bearing deposits3,020,639  5,897  0.77% 2,812,233  5,420  0.76%
FHLB borrowings1,137,373  3,935  1.37% 1,237,055  4,156  1.33%
Subordinated notes, net of unamortized debt issuance costs98,229  1,429  5.77% 98,190  1,413  5.71%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,240  532  3.50% 60,239  520  3.42%
Other borrowings9,157  5  0.22% 8,425  4  0.19%
Total interest bearing liabilities4,325,638  11,798  1.08% 4,216,142  11,513  1.08%
Noninterest bearing deposits846,632      773,739     
Accrued expenses and other liabilities45,613      48,682     
Total liabilities5,217,883      5,038,563     
Shareholders’ equity628,484      554,523     
Total liabilities and shareholders’ equity$5,846,367      $5,593,086     
Net interest income (FTE)  $42,480      $39,607   
Net interest margin (FTE)    3.12%     3.02%
Net interest spread (FTE)    2.91%     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, 2017 and September 30, 2017, loans totaling $2.9 million and $3.1 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, 2017
 Avg Balance Interest Avg
Yield/Rate
ASSETS     
Loans (1)$2,557,093  $29,080  4.56%
Loans held for sale5,914  60  4.07%
Securities:     
Investment securities (taxable) (2)58,168  267  1.84%
Investment securities (tax-exempt) (2)749,259  9,386  5.02%
Mortgage-backed and related securities (2)1,594,269  10,818  2.72%
Total securities2,401,696  20,471  3.42%
FHLB stock, at cost, and equity investments66,744  299  1.80%
Interest earning deposits156,124  364  0.94%
Federal funds sold5,326  14  1.05%
Total earning assets5,192,897  50,288  3.88%
Cash and due from banks50,961     
Accrued interest and other assets358,041     
Less: Allowance for loan losses(18,495)    
Total assets$5,583,404     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings deposits$262,009  121  0.19%
Time deposits1,014,101  2,723  1.08%
Interest bearing demand deposits1,616,036  2,294  0.57%
Total interest bearing deposits2,892,146  5,138  0.71%
FHLB borrowings1,213,016  3,551  1.17%
Subordinated notes, net of unamortized debt issuance costs98,151  1,398  5.71%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,238  494  3.29%
Other borrowings7,884  4  0.20%
Total interest bearing liabilities4,271,435  10,585  0.99%
Noninterest bearing deposits729,564     
Accrued expenses and other liabilities39,819     
Total liabilities5,040,818     
Shareholders’ equity542,586     
Total liabilities and shareholders’ equity$5,583,404     
Net interest income (FTE)  $39,703   
Net interest margin (FTE)    3.07%
Net interest spread (FTE)    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 June 30, 2017, loans totaling $3.0 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)
 Six Months Ended
 June 30, 2018 June 30, 2017
 Avg Balance Interest Avg
Yield/Rate
 Avg Balance Interest Avg
Yield/Rate
ASSETS           
Loans (1)$3,293,090  $79,266  4.85% $2,553,183  $57,321  4.53%
Loans held for sale1,669  30  3.62% 6,466  108  3.37%
Securities:           
Investment securities (taxable) (2)23,022  278  2.44% 72,262  644  1.80%
Investment securities (tax-exempt) (2)803,844  16,004  4.01% 764,431  19,315  5.10%
Mortgage-backed and related securities (2)1,498,151  21,104  2.84% 1,582,455  20,863  2.66%
Total securities2,325,017  37,386  3.24% 2,419,148  40,822  3.40%
FHLB stock, at cost, and equity investments60,831  825  2.73% 66,646  597  1.81%
Interest earning deposits99,848  799  1.61% 159,162  710  0.90%
Federal funds sold14,759  120  1.64% 6,266  28  0.90%
Total earning assets5,795,214  118,426  4.12% 5,210,871  99,586  3.85%
Cash and due from banks76,789      52,237     
Accrued interest and other assets483,086      354,283     
Less: Allowance for loan losses(22,791)     (18,313)    
Total assets$6,332,298      $5,599,078     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$357,073  392  0.22% $257,402  213  0.17%
Time deposits1,172,658  8,198  1.41% 971,095  4,950  1.03%
Interest bearing demand deposits1,995,214  7,442  0.75% 1,661,762  4,256  0.52%
Total interest bearing deposits3,524,945  16,032  0.92% 2,890,259  9,419  0.66%
FHLB borrowings809,879  6,639  1.65% 1,257,429  7,015  1.13%
Subordinated notes, net of unamortized debt issuance costs98,287  2,805  5.76% 98,134  2,791  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,242  1,227  4.11% 60,237  961  3.22%
Other borrowings8,696  44  1.02% 7,437  7  0.19%
Total interest bearing liabilities4,502,049  26,747  1.20% 4,313,496  20,193  0.94%
Noninterest bearing deposits1,031,065      711,745     
Accrued expenses and other liabilities47,034      39,768     
Total liabilities5,580,148      5,065,009     
Shareholders’ equity752,150      534,069     
Total liabilities and shareholders’ equity$6,332,298      $5,599,078     
Net interest income (FTE)  $91,679      $79,393   
Net interest margin (FTE)    3.19%     3.07%
Net interest spread (FTE)    2.92%     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 June 30, 2018 and 2017, loans totaling $35.4 million and $3.0 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.

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Source: Southside Bancshares, Inc.
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