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Press Release

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

Company Release - 2/1/2019 6:30 AM ET

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 [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.

CONTACT:
Julie Shamburger
(903) 531-7134
[email protected]



 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 deposits23,884  70,685  138,685  183,241  111,541 
Federal funds sold9,460  18,284  14,850  14,090  7,980 
Securities available for sale, at estimated fair value1,989,436  1,939,277  2,037,994  2,062,539  1,538,755 
Securities held to maturity, at carrying value162,931  163,365  164,276  164,847  909,506 
Federal Home Loan Bank stock, at cost32,583  32,291  42,994  42,676  55,729 
Loans held for sale601  954  4,566  2,003  2,001 
Loans3,312,799  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 loans3,285,780  3,248,432  3,245,811  3,285,407  3,273,575 
Premises & equipment, net135,972  133,939  132,578  131,625  133,640 
Goodwill201,116  201,116  201,246  201,246  201,246 
Other intangible assets, net17,779  19,009  20,287  21,615  22,993 
Bank owned life insurance98,160  97,611  97,059  100,963  100,368 
Other assets78,417  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 deposits3,430,350  3,519,940  3,469,834  3,586,474  3,478,046 
Total deposits4,425,030  4,553,512  4,508,741  4,641,897  4,515,447 
Other borrowings755,875  570,242  784,754  779,990  1,026,859 
Subordinated notes, net of unamortized debt issuance costs98,407  98,366  98,326  98,286  98,248 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,246  60,244  60,243  60,242  60,241 
Other liabilities52,645  70,484  46,299  46,386  43,162 
Total liabilities5,392,203  5,352,848  5,498,363  5,626,801  5,743,957 
Shareholders' equity731,291  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 expense15,612  14,742  13,686  13,061  11,798 
Net interest income42,410  42,410  43,111  44,133  38,306 
Provision for loan losses2,446  975  1,281  3,735  1,271 
Net interest income after provision for loan losses39,964  41,435  41,830  40,398  37,035 
Noninterest income         
Deposit services6,325  6,317  6,261  6,179  5,940 
Net gain (loss) on sale of securities available for sale61  (741) (332) (827) (249)
Gain on sale of loans101  303  173  115  268 
Trust income1,573  1,568  1,931  1,760  1,156 
Bank owned life insurance income554  552  1,185  632  632 
Brokerage services499  532  506  450  632 
Other1,021  1,491  1,283  1,301  720 
     Total noninterest income10,134  10,022  11,007  9,610  9,099 
Noninterest expense         
Salaries and employee benefits17,823  17,628  16,633  18,559  15,316 
Occupancy expense3,475  3,396  3,360  3,583  3,327 
Acquisition expense118  437  1,026  832  3,474 
Advertising, travel & entertainment786  648  775  685  601 
ATM and debit card expense250  251  243  346  1,049 
Professional fees1,189  824  952  1,070  859 
Software and data processing expense1,057  977  939  1,023  882 
Telephone and communications477  354  478  538  444 
FDIC insurance455  435  484  497  442 
Amortization expense on intangibles1,228  1,279  1,328  1,378  726 
Other3,338  2,733  3,056  3,156  2,813 
     Total noninterest expense30,196  28,962  29,274  31,667  29,933 
Income before income tax expense19,902  22,495  23,563  18,341  16,201 
Income tax expense2,521  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 outstanding34,611  35,114  35,062  35,022  31,370 
Weighted-average diluted shares outstanding34,748  35,288  35,233  35,200  31,569 
Shares outstanding end of period33,725  35,160  35,084  35,053  35,000 
Net income per common share         
Basic$0.50  $0.58  $0.58  $0.46  $0.33 
Diluted0.50  0.58  0.57  0.46  0.33 
Book value per common share21.68  21.40  21.43  21.29  21.55 
Cash dividend paid per common share0.32  0.30  0.30  0.28  0.30 
          
Selected Performance Ratios:         
Return on average assets1.14% 1.30% 1.30% 1.02% 0.70%
Return on average shareholders’ equity9.30  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 liabilities1.46  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 liabilities131.07  131.12  130.22  127.29  124.73 
Noninterest expense to average total assets1.98  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 expense57,101  43,504 
Net interest income172,064  143,970 
Provision for loan losses8,437  4,675 
Net interest income after provision for loan losses163,627  139,295 
Noninterest income   
Deposit services25,082  21,785 
Net (loss) gain on sale of securities available for sale(1,839) 625 
Gain on sale of loans692  1,821 
Trust income6,832  3,818 
Bank owned life insurance income2,923  2,537 
Brokerage services1,987  2,422 
Other5,096  4,465 
     Total noninterest income40,773  37,473 
Noninterest expense   
Salaries and employee benefits70,643  60,779 
Occupancy expense13,814  12,068 
Acquisition expense2,413  4,352 
Advertising, travel & entertainment2,894  2,219 
ATM and debit card expense1,090  3,889 
Professional fees4,035  3,844 
Software and data processing expense3,996  3,027 
Telephone and communications1,847  1,905 
FDIC insurance1,871  1,769 
Amortization expense on intangibles5,213  1,955 
Other12,283  10,528 
     Total noninterest expense120,099  106,335 
Income before income tax expense84,301  70,433 
Income tax expense10,163  16,121 
Net income$74,138  $54,312 


Common share data:  
Weighted-average basic shares outstanding34,951  29,841 
Weighted-average diluted shares outstanding35,116  30,047 
Net income per common share   
Basic$2.12  $1.82 
Diluted2.11  1.81 
Book value per common share21.68  21.55 
Cash dividend paid per common share1.20  1.11 


  
Selected Performance Ratios:   
Return on average assets1.19% 0.96%
Return on average shareholders’ equity9.87  9.65 
Average yield on earning assets (FTE) (1)4.18  3.90 
Average yield on interest bearing liabilities1.30  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 liabilities129.89  122.42 
Noninterest expense to average total assets1.93  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 owned1,206  1,413  1,137  2,014  1,613 
Repossessed assets    68  42  154 
          
Asset Quality Ratios:         
Nonaccruing loans to total loans1.08% 0.99% 1.08% 1.04% 0.09%
Allowance for loan losses to nonaccruing loans75.54  80.22  70.92  70.11  707.56 
Allowance for loan losses to nonperforming assets62.97  65.83  59.10  57.06  198.44 
Allowance for loan losses to total loans0.82  0.80  0.77  0.73  0.63 
Nonperforming assets to total assets0.70  0.65  0.68  0.67  0.16 
Net charge-offs (recoveries) to average loans0.18  (0.01) 0.05  0.04  0.05 
          
Capital Ratios:         
Shareholders’ equity to total assets11.94  12.33  12.03  11.71  11.61 
Average shareholders’ equity to average total assets12.23  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 Residential794,499  791,274  791,359  797,088  805,341 
Commercial1,194,118  1,218,714  1,245,936  1,285,591  1,265,159 
Commercial Loans356,649  322,873  282,723  281,901  266,422 
Municipal Loans353,370  344,792  345,595  342,404  345,798 
Loans to Individuals106,431  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 sale633  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 securities2,170,210  18,325  3.35% 2,217,796  18,254  3.27%
FHLB stock, at cost, and equity investments44,304  393  3.52% 54,216  377  2.76%
Interest earning deposits36,098  411  4.52% 77,977  414  2.11%
Federal funds sold16,967  97  2.27% 16,072  77  1.90%
Total earning assets5,558,052  60,554  4.32% 5,654,566  59,543  4.18%
Cash and due from banks79,544      78,623     
Accrued interest and other assets452,257      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 deposits1,123,101  5,170  1.83% 1,173,672  4,744  1.60%
Interest bearing demand deposits1,968,786  4,908  0.99% 1,953,904  4,495  0.91%
Total interest bearing deposits3,453,294  10,335  1.19% 3,489,981  9,497  1.08%
FHLB borrowings612,134  3,066  1.99% 654.153  3.108  1.88%
Subordinated notes, net of unamortized debt issuance costs98,385  1,431  5.77% 98,346  1,423  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,245  699  4.60% 60,244  684  4.50%
Other borrowings16,405  81  1.96% 9,651  30  1.23%
Total interest bearing liabilities4,240,463  15,612  1.46% 4,312,375  14,742  1.36%
Noninterest bearing deposits1,034,556      1,064,797     
Accrued expenses and other liabilities47,234      48,699     
Total liabilities5,322,253      5,425,871     
Shareholders’ equity741,369      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 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
 Avg Balance Interest Avg Yield/Rate
ASSETS     
Loans (1)$2,897,444  $34,070  4.67%
Loans held for sale2,285  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 securities2,288,518  19,365  3.36%
FHLB stock, at cost, and equity investments67,127  380  2.25%
Interest earning deposits133,007  418  1.25%
Federal funds sold6,831  23  1.34%
Total earning assets5,395,212  54,278  3.99%
Cash and due from banks60,590     
Accrued interest and other assets410,528     
Less: Allowance for loan losses(19,963)    
Total assets$5,846,367     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings deposits$293,392  134  0.18%
Time deposits1,031,008  3,178  1.22%
Interest bearing demand deposits1,696,239  2,585  0.60%
Total interest bearing deposits3,020,639  5,897  0.77%
FHLB borrowings1,137,373  3,935  1.37%
Subordinated notes, net of unamortized debt issuance costs98,229  1,429  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,240  532  3.50%
Other borrowings9,157  5  0.22%
Total interest bearing liabilities4,325,638  11,798  1.08%
Noninterest bearing deposits846,632     
Accrued expenses and other liabilities45,613     
Total liabilities5,217,883     
Shareholders’ equity628,484     
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 sale1,451  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 securities2,258,972  73,965  3.27% 2,361,334  80,026  3.39%
FHLB stock, at cost, and equity investments54,998  1,595  2.90% 66,855  1,306  1.95%
Interest earning deposits78,266  1,624  2.07% 148,924  1,634  1.10%
Federal funds sold15,647  294  1.88% 5,995  72  1.20%
Total earning assets5,699,985  238,523  4.18% 5,254,431  204,984  3.90%
Cash and due from banks77,946      54,590     
Accrued interest and other assets473,639      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 deposits1,160,423  18,112  1.56% 990,553  11,006  1.11%
Interest bearing demand deposits1,978,140  16,845  0.85% 1,645,557  9,266  0.56%
Total interest bearing deposits3,498,072  35,864  1.03% 2,903,455  20,736  0.71%
FHLB borrowings720,785  12,813  1.78% 1,222,033  15,106  1.24%
Subordinated notes, net of unamortized debt issuance costs98,327  5,659  5.76% 98,172  5,633  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,243  2,610  4.33% 60,238  2,013  3.34%
Other borrowings10,880  155  1.42% 8,120  16  0.20%
Total interest bearing liabilities4,388,307  57,101  1.30% 4,292,018  43,504  1.01%
Noninterest bearing deposits1,040,447      761,370     
Accrued expenses and other liabilities47,176      43,440     
Total liabilities5,475,930      5,096,828     
Shareholders’ equity751,262      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.

 

Southside-Bancshare-horizontal_color.jpg

Source: Southside Bancshares, Inc.
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