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Southside Bancshares, Inc. Announces Financial Results for the Three and Nine Months Ended September 30, 2018 and Stock Repurchase Plan

Company Release - 10/26/2018 6:30 AM ET

TYLER, Texas, Oct. 26, 2018 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three and nine months ended September 30, 2018.

Southside reported net income of $20.3 million for the three months ended September 30, 2018, an increase of $5.8 million, or 39.9%, compared to $14.5 million for the same period in 2017.  Southside reported net income of $56.8 million for the nine months ended September 30, 2018, an increase of $12.8 million, or 29.0%, compared to $44.0 million for the same period in 2017.

Earnings per diluted common share increased $0.09, or 18.4%, to $0.58 for the three months ended September 30, 2018, from $0.49 for the same period in 2017.  Earnings per diluted common share increased $0.12, or 8.1%, to $1.61 for the nine months ended September 30, 2018, from $1.49 for the same period in 2017.

The return on average shareholders’ equity for the nine months ended September 30, 2018 was 10.06%, compared to 10.87% for the same period in 2017.  The return on average assets was 1.21% for the nine months ended September 30, 2018, compared to 1.05% for the same period in 2017.

“Highlights for the quarter included record third quarter net income and an efficiency ratio below 50% for a second consecutive quarter,” stated Lee R. Gibson, President and Chief Executive Officer of Southside.  “We reported net income of $20.3 million, an efficiency ratio of 48.91% and recorded a slight increase in total loans during the third quarter.  We also recorded a $741,000 net loss on the sale of available for sale securities and acquisition costs related to the Diboll transaction of $437,000.  These expenses were partially offset by a discrete tax benefit of approximately $800,000 recorded during the third quarter associated with the revision of our deferred taxes as a result of the Tax Cuts and Jobs Act passed in December 2017.  At this time, we expect fourth quarter acquisition expense to be minimal.”

“During the third quarter we experienced a slight increase in our loans of $3.6 million.  For the nine months ended September 30, 2018, loans decreased $19.8 million, which in part, was responsible for the five basis point decrease in our net interest margin on a linked quarter basis.  While we believe our loan pipeline remains solid for the remainder of the year with a number of loans expected to fund, we also expect a number of payoffs in the fourth quarter, which may offset most if not all of the loans funded.  Economic conditions in our East Texas markets remain solid and the Austin and DFW markets 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.  We believe repurchasing shares in a company we know quite well, Southside Bancshares, Inc., at current market prices, is prudent.  The Company has no obligation to repurchase any shares under the Stock Repurchase Plan and may suspend or discontinue it at any time.”

Loans and Deposits

For the nine months ended September 30, 2018, total loans decreased by $19.8 million, or 0.6%, to $3.27 billion, compared to December 31, 2017.  The net decrease in our loans was comprised of decreases of $46.4 million of commercial real estate loans, $23.2 million of loans to individuals, $14.1 million of 1-4 family residential loans and $1.0 million of municipal loans, partially offset by increases of $56.5 million of commercial loans and $8.4 million of construction loans.

Nonperforming assets increased during the nine months ended September 30, 2018 by $29.2 million, or 278.5%, to $39.6 million, or 0.65% 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 nine months ended September 30, 2018, the allowance for loan losses increased by $5.3 million, or 25.6%, to $26.1 million, or 0.80% 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 as well as the increase in the impairments on purchased credit impaired loans acquired in connection with the acquisition of Diboll State Bancshares, Inc. in November 2017.

During the nine months ended September 30, 2018, deposits, net of brokered deposits, decreased $110.0 million, or 2.5%, compared to December 31, 2017, due primarily to the decrease in public fund deposits of $102.2 million.

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

Net interest income increased $7.5 million, or 21.3%, to $42.4 million for the three months ended September 30, 2018, compared to $35.0 million for the same period in 2017.  The increase in net interest income was the result of a $10.7 million increase in interest income primarily from our loan portfolio, partially offset by an increase in interest expense of $3.2 million associated with interest expense on our deposits, compared to the same period in 2017.

For the three months ended September 30, 2018, our net interest margin (FTE) increased to 3.14%, compared to 3.02% 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 and the decrease in the securities portfolio 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 increase in average yields and rates paid was primarily due to rising interest rates during 2017 and 2018.  Our net interest spread (FTE) was 2.82% for both the three months ended September 30, 2018 and 2017.

Net Interest Income for the Nine Months Ended September 30, 2018

Net interest income increased $24.0 million, or 22.7%, to $129.7 million for the nine months ended September 30, 2018, compared to $105.7 million for the same period in 2017.  The increase in net interest income was the result of a $33.8 million increase in interest income primarily from our loan portfolio, partially offset by an increase in interest expense of $9.8 million associated with interest expense on our deposits, compared to the same period in 2017.

For the nine months ended September 30, 2018, our net interest margin (FTE) increased to 3.17%, compared to 3.06% 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 and the decrease in the securities portfolio 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 increase in average yields and rates paid was primarily due to rising interest rates during 2017 and 2018.  For the nine months ended September 30, 2018, our net interest spread (FTE) increased slightly to 2.89%, compared to 2.88% for the same period in 2017.

Net Income for the Three Months Ended September 30, 2018

Net income increased $5.8 million, or 39.9%, for the three months ended September 30, 2018, to $20.3 million compared to the same period in 2017.  The increase was the result of a $10.7 million increase in interest income, a $1.7 million decrease in income tax expense and a $0.6 million increase in noninterest income, partially offset by a $4.0 million increase in noninterest expense and a $3.2 million increase in interest expense.

Excluding net (loss) gain on sale of securities, noninterest income increased $2.0 million, or 22.6%, for the three months ended September 30, 2018 compared to the same period in 2017.  The increase in deposit services and trust income was largely related to the acquisition of Diboll. The increase in other noninterest income was primarily due to increases in swap fee income, mortgage servicing fee income and letter of credit fees.  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 September 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 $4.0 million, or 15.8%, for the three months ended September 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 decreased for the three months ended September 30, 2018 compared to the same period in 2017, due to a discrete tax benefit of approximately $800,000 and a reduced tax rate, both in connection with the Tax Cuts and Jobs Act, which resulted in a lower effective tax rate of 9.7% compared to 21.1% for the same period in 2017.  The discrete tax benefit was the result of a remeasurement of our net deferred tax asset.  Excluding the net impact of discrete tax items, our effective tax rate was approximately 13.6% and 22.3% for the three months ended September 30, 2018 and 2017, respectively.

Net Income for the Nine Months Ended September 30, 2018

Net income increased $12.8 million, or 29.0%, for the nine months ended September 30, 2018, to $56.8 million compared to the same period in 2017.  The increase was primarily the result of a $33.8 million increase in interest income, a $2.6 million decrease in income tax expense and a $2.3 million increase in noninterest income, partially offset by a $13.5 million increase in noninterest expense, a $9.8 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 $5.0 million, or 18.3%, for the nine months ended September 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 nine months ended September 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 $13.5 million, or 17.7%, for the nine months ended September 30, 2018, to $89.9 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.

Income tax expense decreased for the nine months ended September 30, 2018 compared to the same period in 2017, due to a discrete tax benefit of approximately $800,000 and a reduced tax rate, both in connection with the Tax Cuts and Jobs Act, which resulted in a lower effective tax rate of 11.9% compared to 18.9% for the same period in 2017.  The discrete tax benefit was the result of a remeasurement of our net deferred tax asset.  Excluding the net impact of discrete tax items, our effective tax rate was approximately 13.4% and 19.9% for the nine months ended September 30, 2018 and 2017, respectively.

Conference Call

Southside's management team will host a conference call to discuss its third quarter 2018 financial results on Friday, October 26, 2018 at 9:00 a.m. CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 9649537 or by identifying “Southside Bancshares, Inc., Third 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 October 26, 2018 through November 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 nine months ended September 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 September 30, 2018 and for the nine months ended September 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 nine month periods and a 35% marginal tax rate for the 2017 quarterly and nine 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 Nine Months Ended
  2018 2017 2018 2017
  Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
Net interest income (GAAP) $42,410  $43,111  $44,133  $38,306  $34,960  $129,654  $105,664 
Tax equivalent adjustments:              
Loans 590  583  582  1,125  1,103  1,755  3,188 
Investment securities (tax-exempt) 1,801  1,651  1,619  3,049  3,544  5,071  10,148 
Net interest income (FTE) (1) 44,801  45,345  46,334  42,480  39,607  136,480  119,000 
Noninterest income 10,022  11,007  9,610  9,099  9,408  30,639  28,374 
Nonrecurring income (2) 741  (304) 827  483  (627) 1,264  (674)
Total revenue $55,564  $56,048  $56,771  $52,062  $48,388  $168,383  $146,700 
               
Noninterest expense $28,962  $29,274  $31,667  $29,933  $25,007  $89,903  $76,402 
Pre-tax amortization expense (1,279) (1,328) (1,378) (726) (388) (3,985) (1,229)
Nonrecurring expense (3) (507) (1,287) (1,178) (3,479) (432) (2,972) (915)
Adjusted noninterest expense $27,176  $26,659  $29,111  $25,728  $24,187  $82,946  $74,258 
               
Efficiency ratio 51.11% 49.54% 53.35% 53.73% 55.30% 51.34% 55.68%
Efficiency ratio (FTE) (1) 48.91% 47.56% 51.28% 49.42% 49.99% 49.26% 50.62%
               
Average earning assets $5,654,566  $5,700,133  $5,891,352  $5,395,212  $5,199,349  $5,747,816  $5,206,988 
               
Net interest margin 2.98% 3.03% 3.04% 2.82% 2.67% 3.02% 2.71%
Net interest margin (FTE) (1) 3.14% 3.19% 3.19% 3.12% 3.02% 3.17% 3.06%
               
Net interest spread 2.65% 2.75% 2.80% 2.60% 2.47% 2.73% 2.54%
Net interest spread (FTE) (1) 2.82% 2.90% 2.95% 2.91% 2.82% 2.89% 2.88%
                      
(1)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(2)   These adjustments may include 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, 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 under Results of Operations.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.11 billion in assets as of September 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
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
ASSETS         
Cash and due from banks$85,103  $78,534  $65,480  $79,171  $57,947 
Interest earning deposits70,685  138,685  183,241  111,541  120,996 
Federal funds sold18,284  14,850  14,090  7,980  5,570 
Securities available for sale, at estimated fair value1,939,277  2,037,994  2,062,539  1,538,755  1,292,072 
Securities held to maturity, at carrying value163,365  164,276  164,847  909,506  909,844 
Federal Home Loan Bank stock, at cost32,291  42,994  42,676  55,729  61,845 
Loans held for sale954  4,566  2,003  2,001  2,177 
Loans3,274,524  3,270,883  3,309,627  3,294,356  2,682,766 
Less: Allowance for loan losses(26,092) (25,072) (24,220) (20,781) (19,871)
Net loans3,248,432  3,245,811  3,285,407  3,273,575  2,662,895 
Premises & equipment, net133,939  132,578  131,625  133,640  107,099 
Goodwill201,116  201,246  201,246  201,246  91,520 
Other intangible assets, net19,009  20,287  21,615  22,993  3,379 
Bank owned life insurance97,611  97,059  100,963  100,368  99,616 
Other assets95,288  71,293  97,465  61,592  69,470 
Total assets$6,105,354  $6,250,173  $6,373,197  $6,498,097  $5,484,430 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,033,572  $1,038,907  $1,055,423  $1,037,401  $781,701 
Interest bearing deposits3,519,940  3,469,834  3,586,474  3,478,046  2,782,474 
Total deposits4,553,512  4,508,741  4,641,897  4,515,447  3,564,175 
Other borrowings570,242  784,754  779,990  1,026,859  1,151,639 
Subordinated notes, net of unamortized debt issuance costs98,366  98,326  98,286  98,248  98,209 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,244  60,243  60,242  60,241  60,240 
Other liabilities70,484  46,299  46,386  43,162  54,144 
Total liabilities5,352,848  5,498,363  5,626,801  5,743,957  4,928,407 
Shareholders' equity752,506  751,810  746,396  754,140  556,023 
Total liabilities and shareholders' equity$6,105,354  $6,250,173  $6,373,197  $6,498,097  $5,484,430 
                    


  
 At or For the Three Months Ended
 2018 2017
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Income Statement:         
Total interest income$57,152  $56,797  $57,194  $50,104  $46,473 
Total interest expense14,742  13,686  13,061  11,798  11,513 
Net interest income42,410  43,111  44,133  38,306  34,960 
Provision for loan losses975  1,281  3,735  1,271  960 
Net interest income after provision for loan losses41,435  41,830  40,398  37,035  34,000 
Noninterest income         
Deposit services6,317  6,261  6,179  5,940  5,476 
Net (loss) gain on sale of securities available for sale(741) (332) (827) (249) 627 
Gain on sale of loans303  173  115  268  347 
Trust income1,568  1,931  1,760  1,156  873 
Bank owned life insurance income552  1,185  632  632  636 
Brokerage services532  506  450  632  561 
Other1,491  1,283  1,301  720  888 
Total noninterest income10,022  11,007  9,610  9,099  9,408 
Noninterest expense         
Salaries and employee benefits17,628  16,633  18,559  15,316  14,472 
Occupancy expense3,396  3,360  3,583  3,327  2,981 
Acquisition expense437  1,026  832  3,474  405 
Advertising, travel & entertainment648  775  685  601  487 
ATM and debit card expense251  243  346  1,049  1,024 
Professional fees824  952  1,070  859  996 
Software and data processing expense977  939  1,023  882  732 
Telephone and communications354  478  538  444  459 
FDIC insurance435  484  497  442  441 
Amortization expense on intangibles1,279  1,328  1,378  726  388 
Other2,733  3,056  3,156  2,813  2,622 
Total noninterest expense28,962  29,274  31,667  29,933  25,007 
Income before income tax expense22,495  23,563  18,341  16,201  18,401 
Income tax expense2,192  3,360  2,090  5,870  3,890 
Net income$20,303  $20,203  $16,251  $10,331  $14,511 
          
Common share data:   
Weighted-average basic shares outstanding35,114  35,062  35,022  31,370  29,370 
Weighted-average diluted shares outstanding35,288  35,233  35,200  31,569  29,570 
Shares outstanding end of period35,160  35,084  35,053  35,000  29,433 
Net income per common share         
Basic$0.58  $0.58  $0.46  $0.33  $0.49 
Diluted0.58  0.57  0.46  0.33  0.49 
Book value per common share21.40  21.43  21.29  21.55  18.89 
Cash dividend paid per common share0.30  0.30  0.28  0.30  0.28 
          
Selected Performance Ratios:         
Return on average assets1.30% 1.30% 1.02% 0.70% 1.03%
Return on average shareholders’ equity10.61  10.79  8.75  6.52  10.38 
Average yield on earning assets (FTE) (1)4.18  4.15  4.09  3.99  3.90 
Average rate on interest bearing liabilities1.36  1.25  1.14  1.08  1.08 
Net interest spread (FTE) (1)2.82  2.90  2.95  2.91  2.82 
Net interest margin (FTE) (1)3.14  3.19  3.19  3.12  3.02 
Average earning assets to average interest bearing liabilities131.12  130.22  127.29  124.73  123.32 
Noninterest expense to average total assets1.86  1.89  1.99  2.03  1.77 
Efficiency ratio (FTE) (1)48.91  47.56  51.28  49.42  49.99 
               
(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
Nine Months Ended
 September 30,
 2018 2017
Income Statement:   
Total interest income$171,143  $137,370 
Total interest expense41,489  31,706 
Net interest income129,654  105,664 
Provision for loan losses5,991  3,404 
Net interest income after provision for loan losses123,663  102,260 
Noninterest income   
Deposit services18,757  15,845 
Net (loss) gain on sale of securities available for sale(1,900) 874 
Gain on sale of loans591  1,553 
Trust income5,259  2,662 
Bank owned life insurance income2,369  1,905 
Brokerage services1,488  1,790 
Other4,075  3,745 
Total noninterest income30,639  28,374 
Noninterest expense   
Salaries and employee benefits52,820  45,463 
Occupancy expense10,339  8,741 
Acquisition expense2,295  878 
Advertising, travel & entertainment2,108  1,618 
ATM and debit card expense840  2,840 
Professional fees2,846  2,985 
Software and data processing expense2,939  2,145 
Telephone and communications1,370  1,461 
FDIC insurance1,416  1,327 
Amortization expense on intangibles3,985  1,229 
Other8,945  7,715 
Total noninterest expense89,903  76,402 
Income before income tax expense64,399  54,232 
Income tax expense7,642  10,251 
Net income$56,757  $43,981 


Common share data:  
Weighted-average basic shares outstanding35,066  29,326 
Weighted-average diluted shares outstanding35,241  29,531 
Net income per common share   
Basic$1.62  $1.50 
Diluted1.61  1.49 
Book value per common share21.40  18.89 
Cash dividend paid per common share0.88  0.81 


  
Selected Performance Ratios:   
Return on average assets1.21% 1.05%
Return on average shareholders’ equity10.06  10.87 
Average yield on earning assets (FTE) (1)4.14  3.87 
Average yield on interest bearing liabilities1.25  0.99 
Net interest spread (FTE) (1)2.89  2.88 
Net interest margin (FTE) (1)3.17  3.06 
Average earning assets to average interest bearing liabilities129.51  121.64 
Noninterest expense to average total assets1.91  1.83 
Efficiency ratio (FTE) (1)49.26  50.62 
      
(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
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Nonperforming assets:$39,638  $42,423  $42,444  $10,472  $9,119 
Nonaccrual loans (1)32,526  35,351  34,545  2,937  3,095 
Accruing loans past due more than 90 days (1)  7  4  1   
Restructured loans (2)5,699  5,860  5,839  5,767  5,725 
Other real estate owned1,413  1,137  2,014  1,613  298 
Repossessed assets  68  42  154  1 
          
Asset Quality Ratios:         
Nonaccruing loans to total loans0.99% 1.08% 1.04% 0.09% 0.12%
Allowance for loan losses to nonaccruing loans80.22  70.92  70.11  707.56  642.04 
Allowance for loan losses to nonperforming assets65.83  59.10  57.06  198.44  217.91 
Allowance for loan losses to total loans0.80  0.77  0.73  0.63  0.74 
Nonperforming assets to total assets0.65  0.68  0.67  0.16  0.17 
Net (recoveries) charge-offs to average loans(0.01) 0.05  0.04  0.05  0.05 
          
Capital Ratios:         
Shareholders’ equity to total assets12.33  12.03  11.71  11.61  10.14 
Average shareholders’ equity to average total assets12.28  12.06  11.69  10.75  9.91 
               
(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 $3.2 million, $2.9 million, $2.9 million, $2.9 million, and $3.0 million in PCI loans restructured as of September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.
               

Loan Portfolio Composition

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

  
 Three Months Ended
 2018 2017
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Real Estate Loans:         
Construction$484,254  $487,286  $474,791  $475,867  $420,497 
1-4 Family Residential791,274  791,359  797,088  805,341  609,159 
Commercial1,218,714  1,245,936  1,285,591  1,265,159  1,073,646 
Commercial Loans322,873  282,723  281,901  266,422  166,919 
Municipal Loans344,792  345,595  342,404  345,798  322,286 
Loans to Individuals112,617  117,984  127,852  135,769  90,259 
Total Loans$3,274,524  $3,270,883  $3,309,627  $3,294,356  $2,682,766 
                    

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
 September 30, 2018 June 30, 2018
 Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS           
Loans (1)$3,286,664  $40,396  4.88% $3,285,756  $39,865  4.87%
Loans held for sale1,841  25  5.39% 1,794  19  4.25%
Securities:           
Investment securities (taxable) (2)4,285  36  3.33% 6,891  51  2.97%
Investment securities (tax-exempt) (2)795,397  8,132  4.06% 802,611  8,004  4.00%
Mortgage-backed and related securities (2)1,418,114  10,086  2.82% 1,439,810  10,210  2.84%
Total securities2,217,796  18,254  3.27% 2,249,312  18,265  3.26%
FHLB stock, at cost, and equity investments54,216  377  2.76% 54,729  411  3.01%
Interest earning deposits77,977  414  2.11% 92,291  400  1.74%
Federal funds sold16,072  77  1.90% 16,251  71  1.75%
Total earning assets5,654,566  59,543  4.18% 5,700,133  59,031  4.15%
Cash and due from banks78,623      75,560     
Accrued interest and other assets477,737      473,142     
Less: Allowance for loan losses(25,646)     (24,558)    
Total assets$6,185,280      $6,224,277     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$362,405  258  0.28% $360,340  208  0.23%
Time deposits1,173,672  4,744  1.60% 1,175,230  4,303  1.47%
Interest bearing demand deposits1,953,904  4,495  0.91% 1,981,427  4,070  0.82%
Total interest bearing deposits3,489,981  9,497  1.08% 3,516,997  8,581  0.98%
FHLB borrowings654,153  3,108  1.88% 692,386  3,007  1.74%
Subordinated notes, net of unamortized debt issuance costs98,346  1,423  5.74% 98,306  1,407  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,244  684  4.50% 60,243  658  4.38%
Other borrowings9,651  30  1.23% 9,283  33  1.43%
Total interest bearing liabilities4,312,375  14,742  1.36% 4,377,215  13,686  1.25%
Noninterest bearing deposits1,064,797      1,045,298     
Accrued expenses and other liabilities48,699      50,843     
Total liabilities5,425,871      5,473,356     
Shareholders’ equity759,409      750,921     
Total liabilities and shareholders’ equity$6,185,280      $6,224,277     
Net interest income (FTE)  $44,801      $45,345   
Net interest margin (FTE)    3.14%     3.19%
Net interest spread (FTE)    2.82%     2.90%
              
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
              

Note:  As of September 30, 2018 and June 30, 2018, loans totaling $32.5 million and $35.4 million, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

  
 Average Balances with Average Yields and Rates
 (unaudited)
 Three Months Ended
 March 31, 2018 December 31, 2017
 Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS           
Loans (1)$3,300,506  $39,401  4.84% $2,897,444  $34,070  4.67%
Loans held for sale1,543  11  2.89% 2,285  22  3.82%
Securities:           
Investment securities (taxable) (2)39,332  227  2.34% 51,678  237  1.82%
Investment securities (tax-exempt) (2)805,091  8,000  4.03% 775,681  9,197  4.70%
Mortgage-backed and related securities (2)1,557,140  10,894  2.84% 1,461,159  9,931  2.70%
Total securities2,401,563  19,121  3.23% 2,288,518  19,365  3.36%
FHLB stock, at cost, and equity investments67,000  414  2.51% 67,127  380  2.25%
Interest earning deposits107,488  399  1.51% 133,007  418  1.25%
Federal funds sold13,252  49  1.50% 6,831  23  1.34%
Total earning assets5,891,352  59,395  4.09% 5,395,212  54,278  3.99%
Cash and due from banks78,031      60,590     
Accrued interest and other assets493,974      410,528     
Less: Allowance for loan losses(21,005)     (19,963)    
Total assets$6,442,352      $5,846,367     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$353,770  184  0.21% $293,392  134  0.18%
Time deposits1,170,024  3,895  1.35% 1,031,008  3,178  1.22%
Interest bearing demand deposits2,009,154  3,372  0.68% 1,696,239  2,585  0.60%
Total interest bearing deposits3,532,948  7,451  0.86% 3,020,639  5,897  0.77%
FHLB borrowings928,677  3,632  1.59% 1,137,373  3,935  1.37%
Subordinated notes, net of unamortized debt issuance costs98,267  1,398  5.77% 98,229  1,429  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,241  569  3.83% 60,240  532  3.50%
Other borrowings8,103  11  0.55% 9,157  5  0.22%
Total interest bearing liabilities4,628,236  13,061  1.14% 4,325,638  11,798  1.08%
Noninterest bearing deposits1,016,707      846,632     
Accrued expenses and other liabilities44,015      45,613     
Total liabilities5,688,958      5,217,883     
Shareholders’ equity753,394      628,484     
Total liabilities and shareholders’ equity$6,442,352      $5,846,367     
Net interest income (FTE)  $46,334      $42,480   
Net interest margin (FTE)    3.19%     3.12%
Net interest spread (FTE)    2.95%     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 March 31, 2018 and December 31, 2017, loans totaling $34.5 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.

  
 Average Balances with Average Yields and Rates
 (unaudited)
 Three Months Ended
 September 30, 2017
 Avg Balance Interest Avg Yield/Rate
ASSETS     
Loans (1)$2,657,562  $30,378  4.54%
Loans held for sale5,060  47  3.69%
Securities:     
Investment securities (taxable) (2)11,085  58  2.08%
Investment securities (tax-exempt) (2)758,828  9,214  4.82%
Mortgage-backed and related securities (2)1,550,494  10,567  2.70%
Total securities2,320,407  19,839  3.39%
FHLB stock, at cost, and equity investments66,994  329  1.95%
Interest earning deposits144,700  506  1.39%
Federal funds sold4,626  21  1.80%
Total earning assets5,199,349  51,120  3.90%
Cash and due from banks53,220     
Accrued interest and other assets360,073     
Less: Allowance for loan losses(19,556)    
Total assets$5,593,086     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings deposits$260,860  117  0.18%
Time deposits988,380  2,878  1.16%
Interest bearing demand deposits1,562,993  2,425  0.62%
Total interest bearing deposits2,812,233  5,420  0.76%
FHLB borrowings1,237,055  4,156  1.33%
Subordinated notes, net of unamortized debt issuance costs98,190  1,413  5.71%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,239  520  3.42%
Other borrowings8,425  4  0.19%
Total interest bearing liabilities4,216,142  11,513  1.08%
Noninterest bearing deposits773,739     
Accrued expenses and other liabilities48,682     
Total liabilities5,038,563     
Shareholders’ equity554,523     
Total liabilities and shareholders’ equity$5,593,086     
Net interest income (FTE)  $39,607   
Net interest margin (FTE)    3.02%
Net interest spread (FTE)    2.82%
       
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
       

Note:  As of September 30, 2017, loans totaling $3.1 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)
 Nine Months Ended
 September 30, 2018 September 30, 2017
 Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS           
Loans (1)$3,290,925  $119,662  4.86% $2,588,358  $87,699  4.53%
Loans held for sale1,727  55  4.26% 5,992  155  3.46%
Securities:           
Investment securities (taxable) (2)16,707  314  2.51% 51,645  702  1.82%
Investment securities (tax-exempt) (2)800,998  24,136  4.03% 762,543  28,529  5.00%
Mortgage-backed and related securities (2)1,471,179  31,190  2.83% 1,571,685  31,430  2.67%
Total securities2,288,884  55,640  3.25% 2,385,873  60,661  3.40%
FHLB stock, at cost, and equity investments58,601  1,202  2.74% 66,763  926  1.85%
Interest earning deposits92,477  1,213  1.75% 154,289  1,216  1.05%
Federal funds sold15,202  197  1.73% 5,713  49  1.15%
Total earning assets5,747,816  177,969  4.14% 5,206,988  150,706  3.87%
Cash and due from banks77,407      52,568     
Accrued interest and other assets481,279      356,212     
Less: Allowance for loan losses(23,753)     (18,732)    
Total assets$6,282,749      $5,597,036     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$358,870  650  0.24% $258,568  330  0.17%
Time deposits1,173,000  12,942  1.48% 976,919  7,828  1.07%
Interest bearing demand deposits1,981,293  11,937  0.81% 1,628,477  6,681  0.55%
Total interest bearing deposits3,513,163  25,529  0.97% 2,863,964  14,839  0.69%
FHLB borrowings757,399  9,747  1.72% 1,250,563  11,171  1.19%
Subordinated notes, net of unamortized debt issuance costs98,307  4,228  5.75% 98,153  4,204  5.73%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,242  1,911  4.24% 60,238  1,481  3.29%
Other borrowings9,018  74  1.10% 7,770  11  0.19%
Total interest bearing liabilities4,438,129  41,489  1.25% 4,280,688  31,706  0.99%
Noninterest bearing deposits1,042,432      732,637     
Accrued expenses and other liabilities47,591      42,749     
Total liabilities5,528,152      5,056,074     
Shareholders’ equity754,597      540,962     
Total liabilities and shareholders’ equity$6,282,749      $5,597,036     
Net interest income (FTE)  $136,480      $119,000   
Net interest margin (FTE)    3.17%     3.06%
Net interest spread (FTE)    2.89%     2.88%
              
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
              

Note:  As of September 30, 2018 and 2017, loans totaling $32.5 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.

Southside-Bancshare-horizontal_color.jpg

Source: Southside Bancshares, Inc.
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