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Press Release

Southside Bancshares, Inc. Announces Financial Results for the Three Months Ended March 31, 2019

Company Release - 4/26/2019 6:30 AM ET
  • First quarter earnings per diluted common share increased 21.7% to $0.56 compared with first quarter 2018

  • First quarter net income increased 15.8% to $18.8 million compared with first quarter 2018

  • Linked quarter nonperforming assets decreased 11.2% to 0.61% of total assets for first quarter 2019

  • First quarter annualized return on average assets of 1.21%

  • First quarter annualized return on average shareholders’ equity of 10.35% and return on average tangible common equity of 15.44% (1)

  • Linked quarter noninterest-bearing deposits increased 4.4% in first quarter 2019

TYLER, Texas, April 26, 2019 (GLOBE NEWSWIRE) --  Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three months ended March 31, 2019.  Southside reported net income of $18.8 million for the three months ended March 31, 2019, an increase of $2.6 million, or 15.8%, compared to $16.3 million for the same period in 2018.  Earnings per diluted common share increased $0.10, or 21.7%, to $0.56 for the three months ended March 31, 2019, from $0.46 for the same period in 2018.  The return on average shareholders’ equity for the three months ended March 31, 2019 was 10.35%, compared to 8.75% for the same period in 2018.  The return on average assets was 1.21% for the three months ended March 31, 2019, compared to 1.02% for the same period in 2018.

“The first quarter results provide an excellent start for 2019,” stated Lee R. Gibson, President and Chief Executive Officer of Southside.  “First quarter earnings per share increased 21.7% and net income increased 15.8% when compared to the first quarter 2018.  On a linked quarter basis nonperforming assets decreased 11.2%, to 0.61% of total assets due primarily to the sale of three nonperforming loans, which was also the primary reason for the decrease in the provision for loan losses this quarter.”

“Our tax-equivalent net interest margin on a linked quarter basis decreased from 3.21% to 3.07%, due in part to a loss on a fair value hedge interest rate swap of $0.5 million recorded in net interest income.  During the last month of the quarter, as interest rates decreased, we sold a little more than $520 million of lower yielding available for sale securities at an overall net gain of $256,000.  These sales were partially offset by purchases of securities during the quarter at higher yields.”

Operating Results for the Three Months Ended March 31, 2019

Net income was $18.8 million for the three months ended March 31, 2019 compared with $16.3 million for the same period in 2018, an increase of $2.6 million, or 15.8%.  Net income per diluted common share was $0.56 for the three months ended March 31, 2019 compared with $0.46 for the same period in 2018, an increase of 21.7%.  The increase in net income was largely driven by the decrease in provision for loan losses and noninterest expense, as well as the increase in interest income, partially offset by an increase in interest expense and income tax expense.  Annualized returns on average assets and average shareholders’ equity for the three months ended March 31, 2019 were 1.21% and 10.35%, respectively.  Our efficiency ratio (FTE) was 53.66% (1) for the three months ended March 31, 2019.

Net interest income before provision for loan losses for the three months ended March 31, 2019 was $41.1 million compared with $44.1 million during the same period in 2018, a decrease of $3.0 million, or 6.8%.  Linked quarter net interest income before provision for loan losses decreased $1.3 million, or 3.0%, to $41.1 million, compared with $42.4 million during the three months ended December 31, 2018.  The decrease in net interest income for both periods was due to the increase in interest expense on our interest bearing liabilities that more than offset the increase in interest income on our interest earning assets.

Our tax equivalent net interest margin was 3.07% for the three months ended March 31, 2019 compared with 3.19% for the same period in 2018 and 3.21% for the three months ended December 31, 2018.  The decrease during both periods was primarily due to the higher rates paid on interest bearing liabilities.

Noninterest income was $9.5 million for the three months ended March 31, 2019, a slight decrease compared with $9.6 million for the same period in 2018.  The decrease was primarily due to a decrease in deposit services income, trust income and a partial loss on a fair value hedge interest rate swap included in other noninterest income, partially offset by an increase in net gain on sale of securities.  On a linked quarter basis, noninterest income decreased $0.6 million, or 5.9%, primarily due to a decrease in deposit services income and a partial loss on a fair value hedge interest rate swap during the first quarter of 2019.

Noninterest expense was $29.6 million for the three months ended March 31, 2019 compared with $31.7 million for the same period in 2018, a decrease of $2.0 million, or 6.4%.  The decrease was primarily due to a decrease in salaries and employee benefits, net occupancy expense, acquisition expense and amortization expense.  On a linked quarter basis, noninterest expense decreased $0.6 million, or 1.9%, compared with the three months ended December 31, 2018.  This decrease primarily resulted from a decrease in net occupancy expense and other noninterest expense, partially offset by an increase in salary and employee benefits.

Income tax expense increased $1.0 million for the three months ended March 31, 2019 compared to the same period in 2018.  Our effective tax rate (“ETR”) was approximately 14.3% and 11.4% for the three months ended March 31, 2019 and 2018, respectively.  On a linked quarter basis, income tax expense increased $0.6 million and the ETR increased to 14.3% for the first quarter of 2019 from 12.7% for the three months ended December 31, 2018.  The higher ETR for both periods was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income.

Balance Sheet Data

At March 31, 2019, we had $6.22 billion in total assets compared with $6.37 billion at March 31, 2018 and $6.12 billion at December 31, 2018.

Loans at March 31, 2019 were $3.305 billion, a decrease of $4.5 million, or 0.1%, compared with $3.310 billion at March 31, 2018.  Linked quarter loans decreased $7.7 million, or 0.2%, from $3.313 billion at December 31, 2018.  The linked quarter net decrease in our loans consisted of decreases of $89.7 million of commercial real estate loans, $10.3 million of municipal loans, $8.3 million of 1-4 family residential loans, and $6.3 million of loans to individuals, partially offset by increases of $95.7 million of construction loans and $11.3 million of commercial loans.

Securities at March 31, 2019 were $2.02 billion, a decrease of $203.7 million, or 9.1%, compared with $2.23 billion at March 31, 2018.  Linked quarter securities decreased $128.7 million, or 6.0%, from $2.15 billion at December 31, 2018.

Deposits at March 31, 2019 were $4.57 billion, a decrease of $74.0 million, or 1.6%, compared with $4.64 billion at March 31, 2018 due to a decrease in public fund deposits that more than offset an increase in brokered deposits.  Linked quarter deposits increased $142.9 million, or 3.2%, from $4.43 billion at December 31, 2018 primarily due to an increase in brokered deposits.

Asset Quality

Nonperforming assets decreased during the three months ended March 31, 2019 by $4.8 million, or 11.2%, to $38.1 million, or 0.61% of total assets, compared to $42.9 million, or 0.70% of total assets at December 31, 2018.  During the three months ended March 31, 2019, our nonaccrual loans decreased $18.1 million primarily due to the sale of three commercial real estate loans of approximately $16.7 million.  Our accruing loans past due more than 90 days increased $7.9 million, consisting of one commercial real estate loan relationship that subsequently paid off in full on April 15, 2019.  Additionally, our restructured loans increased $5.6 million primarily due to the renegotiation of a commercial real estate loan.

During the three months ended March 31, 2019, the allowance for loan losses decreased by $2.9 million, or 10.6%, to $24.2 million, or 0.73% of total loans, compared to $27.0 million, or 0.82%, of total loans at December 31, 2018.  The decrease in the allowance was primarily the result of $1.2 million in charge-offs associated with three nonaccrual loans sold during the first quarter of 2019 that were previously in nonaccrual status and a partial reversal of provision associated with these loans in the first quarter.

For the three months ended March 31, 2019, we reversed provision for loan losses of $0.9 million compared with a $3.7 million provision expense for the three months ended March 31, 2018 and a $2.4 million provision expense for the three months ended December 31, 2018.

Net charge-offs were $1.9 million for the three months ended March 31, 2019 compared with $0.3 million for the three months ended March 31, 2018 and $1.5 million for the three months ended December 31, 2018.  Net charge-offs for the first quarter of 2019 were primarily related to three nonaccrual commercial real estate loans sold during the first quarter.

Dividend

Southside Bancshares, Inc. declared a first quarter cash dividend of $0.30 per share on February 7, 2019, which was paid on March 7, 2019, to all shareholders of record as of February 21, 2019.

Conference Call

Southside's management team will host a conference call to discuss its first quarter ended March 31, 2019 financial results on Friday, April 26, 2019 at 9:00 a.m. CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 1357433 or by identifying “Southside Bancshares, Inc., First Quarter 2019 Earnings Call.”  To listen to the call via webcast, register at http://investors.southside.com.

For those unable to listen to the conference call live, a recording will be available from approximately 12:00 p.m. CDT April 26, 2019 through May 8, 2019 by accessing the company website, http://investors.southside.com.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry.  However, certain non-GAAP measures are used by management to supplement the evaluation of our performance.  These include the following fully taxable-equivalent measures (“FTE”): (i) Net interest income (FTE), (ii) Net interest margin (FTE), (iii) Net interest spread (FTE), and (iv) Efficiency ratio (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% for the three months ended March 31, 2019 and 2018 to increase tax-exempt interest income to a tax-equivalent basis.  Interest income earned on certain assets is completely or partially exempt from federal income tax.  As such, these tax-exempt instruments typically yield lower returns than taxable investments.

Net interest income (FTE), Net interest margin (FTE) and Net interest spread (FTE).  Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments.  We believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest income.  Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin.  Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Efficiency ratio (FTE).  The efficiency ratio (FTE) is a non-GAAP measure that provides a measure of productivity in the banking industry.  This ratio is calculated to measure the cost of generating one dollar of revenue.  The ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue.  We calculate this ratio by dividing noninterest expense, excluding amortization expense on intangibles and certain nonrecurring expense by the sum of net interest income (FTE) and noninterest income, excluding net gain (loss) on sale of securities available for sale and certain nonrecurring impairments.  The most directly comparable financial measure calculated in accordance with GAAP is our efficiency ratio.

These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently.  Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure.

Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reported in the respective earning asset categories as listed in the “Average Balances with Average Yields and Rates” tables.

A reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.22 billion in assets as of March 31, 2019, that owns 100% of Southside Bank.  Southside Bank currently has 59 branches in Texas and operates a network of 81 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 Lindsey Bibby at (903) 630-7965, 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, 2018, under “Part I - Item 1. Forward Looking Information” and "Part I - Item 1A. Risk Factors" and in the Company’s other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

Southside Bancshares, Inc.
Consolidated Financial Summary (Unaudited)
(Dollars in thousands)

 As of
 2019 2018
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
ASSETS         
Cash and due from banks$81,981  $87,375  $85,103  $78,534  $65,480 
Interest earning deposits184,612  23,884  70,685  138,685  183,241 
Federal funds sold3,350  9,460  18,284  14,850  14,090 
Securities available for sale, at estimated fair value1,876,255  1,989,436  1,939,277  2,037,994  2,062,539 
Securities held to maturity, at carrying value147,431  162,931  163,365  164,276  164,847 
Total securities2,023,686  2,152,367  2,102,642  2,202,270  2,227,386 
Federal Home Loan Bank stock, at cost35,269  32,583  32,291  42,994  42,676 
Loans held for sale384  601  954  4,566  2,003 
Loans3,305,110  3,312,799  3,274,524  3,270,883  3,309,627 
Less: Allowance for loan losses(24,155) (27,019) (26,092) (25,072) (24,220)
Net loans3,280,955  3,285,780  3,248,432  3,245,811  3,285,407 
Premises & equipment, net138,290  135,972  133,939  132,578  131,625 
Goodwill201,116  201,116  201,116  201,246  201,246 
Other intangible assets, net16,600  17,779  19,009  20,287  21,615 
Bank owned life insurance98,704  98,160  97,611  97,059  100,963 
Other assets152,249  78,417  95,288  71,293  97,465 
Total assets$6,217,196  $6,123,494  $6,105,354  $6,250,173  $6,373,197 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,038,116  $994,680  $1,033,572  $1,038,907  $1,055,423 
Interest bearing deposits3,529,777  3,430,350  3,519,940  3,469,834  3,586,474 
Total deposits4,567,893  4,425,030  4,553,512  4,508,741  4,641,897 
Other borrowings628,498  755,875  570,242  784,754  779,990 
Subordinated notes, net of unamortized debt issuance costs98,448  98,407  98,366  98,326  98,286 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,247  60,246  60,244  60,243  60,242 
Other liabilities104,077  52,645  70,484  46,299  46,386 
Total liabilities5,459,163  5,392,203  5,352,848  5,498,363  5,626,801 
Shareholders' equity758,033  731,291  752,506  751,810  746,396 
Total liabilities and shareholders' equity$6,217,196  $6,123,494  $6,105,354  $6,250,173  $6,373,197 

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars and share amounts in thousands, except per share data)

 At or For the Three Months Ended
 2019 2018
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Income Statement:         
Total interest income$59,027  $58,022  $57,152  $56,797  $57,194 
Total interest expense17,902  15,612  14,742  13,686  13,061 
Net interest income41,125  42,410  42,410  43,111  44,133 
Provision for loan losses(918) 2,446  975  1,281  3,735 
Net interest income after provision for loan losses42,043  39,964  41,435  41,830  40,398 
Noninterest income         
Deposit services5,986  6,325  6,317  6,261  6,179 
Net gain (loss) on sale of securities available for sale256  61  (741) (332) (827)
Gain on sale of loans93  101  303  173  115 
Trust income1,541  1,573  1,568  1,931  1,760 
Bank owned life insurance income544  554  552  1,185  632 
Brokerage services517  499  532  506  450 
Other601  1,021  1,491  1,283  1,301 
Total noninterest income9,538  10,134  10,022  11,007  9,610 
Noninterest expense         
Salaries and employee benefits18,046  17,823  17,628  16,633  18,559 
Net occupancy expense3,175  3,475  3,396  3,360  3,583 
Acquisition expense  118  437  1,026  832 
Advertising, travel & entertainment847  786  648  775  685 
ATM expense180  250  251  243  346 
Professional fees1,314  1,189  824  952  1,070 
Software and data processing expense1,076  1,057  977  939  1,023 
Telephone and communications487  477  354  478  538 
FDIC insurance422  455  435  484  497 
Amortization expense on intangibles1,179  1,228  1,279  1,328  1,378 
Other2,901  3,338  2,733  3,056  3,156 
Total noninterest expense29,627  30,196  28,962  29,274  31,667 
Income before income tax expense21,954  19,902  22,495  23,563  18,341 
Income tax expense3,137  2,521  2,192  3,360  2,090 
Net income$18,817  $17,381  $20,303  $20,203  $16,251 
          
Common share data:   
Weighted-average basic shares outstanding33,697  34,611  35,114  35,062  35,022 
Weighted-average diluted shares outstanding33,846  34,748  35,288  35,233  35,200 
Common shares outstanding end of period33,718  33,725  35,160  35,084  35,053 
Net income per common share         
Basic$0.56  $0.50  $0.58  $0.58  $0.46 
Diluted0.56  0.50  0.58  0.57  0.46 
Book value per common share22.48  21.68  21.40  21.43  21.29 
Tangible book value per common share (1)16.02  15.19  15.14  15.11  14.94 
Cash dividends paid per common share0.30  0.32  0.30  0.30  0.28 
          
Selected Performance Ratios:         
Return on average assets1.21% 1.14% 1.30% 1.30% 1.02%
Return on average shareholders’ equity10.35  9.30  10.61  10.79  8.75 
Return on average tangible common equity (1)15.44  13.95  15.70  16.13  13.28 
Average yield on earning assets (FTE) (1)4.33  4.32  4.18  4.15  4.09 
Average rate on interest bearing liabilities1.62  1.46  1.36  1.25  1.14 
Net interest spread (FTE) (1)2.71  2.86  2.82  2.90  2.95 
Net interest margin (FTE) (1)3.07  3.21  3.14  3.19  3.19 
Average earning assets to average interest bearing liabilities127.70  131.07  131.12  130.22  127.29 
Noninterest expense to average total assets1.91  1.98  1.86  1.89  1.99 
Efficiency ratio (FTE) (1)53.66  52.18  48.91  47.56  51.28 
  1. Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars in thousands)

 Three Months Ended
 2019 2018
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Nonperforming assets:$38,111  $42,906  $39,638  $42,423  $42,444 
Nonaccrual loans (1)17,691  35,770  32,526  35,351  34,545 
Accruing loans past due more than 90 days (1)(2)7,927      7  4 
Restructured loans (3)11,490  5,930  5,699  5,860  5,839 
Other real estate owned978  1,206  1,413  1,137  2,014 
Repossessed assets25      68  42 
          
Asset Quality Ratios:         
Nonaccruing loans to total loans0.54% 1.08% 0.99% 1.08% 1.04%
Allowance for loan losses to nonaccruing loans136.54  75.54  80.22  70.92  70.11 
Allowance for loan losses to nonperforming assets63.38  62.97  65.83  59.10  57.06 
Allowance for loan losses to total loans0.73  0.82  0.80  0.77  0.73 
Nonperforming assets to total assets0.61  0.70  0.65  0.68  0.67 
Net charge-offs (recoveries) to average loans0.24  0.18  (0.01) 0.05  0.04 
          
Capital Ratios:         
Shareholders’ equity to total assets12.19  11.94  12.33  12.03  11.71 
Common equity tier 1 capital14.38  14.77  15.90  15.49  14.76 
Tier 1 risk-based capital15.88  16.29  17.43  17.02  16.26 
Total risk-based capital19.06  19.59  20.75  20.31  19.45 
Tier 1 leverage capital10.18  10.64  11.06  10.76  10.17 
Period end tangible equity to period end tangible assets (4)9.01  8.68  9.05  8.80  8.51 
Average shareholders’ equity to average total assets11.70  12.23  12.28  12.06  11.69 

(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)   The loan relationship at March 31, 2019 paid off in full on April 15, 2019.
(3)   Includes $0.7 million, $3.1 million, $3.2 million, $2.9 million and $2.9 million in PCI loans restructured as of March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018, respectively.
(4)   Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented (in thousands):

 Three Months Ended
 2019 2018
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Real Estate Loans:         
Construction$603,411  $507,732  $484,254  $487,286  $474,791 
1-4 Family Residential786,198  794,499  791,274  791,359  797,088 
Commercial1,104,378  1,194,118  1,218,714  1,245,936  1,285,591 
Commercial Loans367,995  356,649  322,873  282,723  281,901 
Municipal Loans343,026  353,370  344,792  345,595  342,404 
Loans to Individuals100,102  106,431  112,617  117,984  127,852 
Total Loans$3,305,110  $3,312,799  $3,274,524  $3,270,883  $3,309,627 


Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)

The tables that follow show average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities for the periods presented.  The interest and related yields presented are on a fully taxable-equivalent basis and are therefore non-GAAP measures.  See “Non-GAAP Financial Measures” and “Non-GAAP Reconciliation” for more information.

 Three Months Ended
 March 31, 2019 December 31, 2018
 Avg Balance Interest Avg
Yield/
Rate
 Avg Balance Interest Avg
Yield/
Rate
ASSETS           
Loans (1)$3,296,665  $42,210  5.19% $3,289,840  $41,320  4.98%
Loans held for sale611  7  4.65% 633  8  5.01%
Securities:           
Investment securities (taxable) (2)3,000  28  3.79% 13,066  103  3.13%
Investment securities (tax-exempt) (2)659,187  5,732  3.53% 722,162  7,828  4.30%
Mortgage-backed and related securities (2)1,647,564  12,474  3.07% 1,434,982  10,394  2.87%
Total securities2,309,751  18,234  3.20% 2,170,210  18,325  3.35%
FHLB stock, at cost, and equity investments53,764  355  2.68% 44,304  393  3.52%
Interest earning deposits64,690  386  2.42% 36,098  411  4.52%
Federal funds sold7,635  47  2.50% 16,967  97  2.27%
Total earning assets5,733,116  61,239  4.33% 5,558,052  60,554  4.32%
Cash and due from banks83,147      79,544     
Accrued interest and other assets513,738      452,257     
Less: Allowance for loan losses(27,060)     (26,231)    
Total assets$6,302,941      $6,063,622     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings deposits$360,664  258  0.29% $361,407  257  0.28%
Time deposits1,154,203  5,697  2.00% 1,123,101  5,170  1.83%
Interest bearing demand deposits1,982,891  5,286  1.08% 1,968,786  4,908  0.99%
Total interest bearing deposits3,497,758  11,241  1.30% 3,453,294  10,335  1.19%
FHLB borrowings816,389  4,457  2.21% 612,134  3,066  1.99%
Subordinated notes, net of unamortized debt issuance costs98,428  1,400  5.77% 98,385  1,431  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,246  729  4.91% 60,245  699  4.60%
Other borrowings16,788  75  1.81% 16,405  81  1.96%
Total interest bearing liabilities4,489,609  17,902  1.62% 4,240,463  15,612  1.46%
Noninterest bearing deposits986,343      1,034,556     
Accrued expenses and other liabilities89,768      47,234     
Total liabilities5,565,720      5,322,253     
Shareholders’ equity737,221      741,369     
Total liabilities and shareholders’ equity$6,302,941      $6,063,622     
Net interest income (FTE)  $43,337      $44,942   
Net interest margin (FTE)    3.07%     3.21%
Net interest spread (FTE)    2.71%     2.86%
  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, 2019 and December 31, 2018, loans totaling $17.7 million and $35.8 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 Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)

 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.

Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)

 Three Months Ended
 March 31, 2018
 Avg Balance Interest Avg
Yield/Rate
ASSETS     
Loans (1)$3,300,506  $39,401  4.84%
Loans held for sale1,543  11  2.89%
Securities:     
Investment securities (taxable) (2)39,332  227  2.34%
Investment securities (tax-exempt) (2)805,091  8,000  4.03%
Mortgage-backed and related securities (2)1,557,140  10,894  2.84%
Total securities2,401,563  19,121  3.23%
FHLB stock, at cost, and equity investments67,000  414  2.51%
Interest earning deposits107,488  399  1.51%
Federal funds sold13,252  49  1.50%
Total earning assets5,891,352  59,395  4.09%
Cash and due from banks78,031     
Accrued interest and other assets493,974     
Less: Allowance for loan losses(21,005)    
Total assets$6,442,352     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings deposits$353,770  184  0.21%
Time deposits1,170,024  3,895  1.35%
Interest bearing demand deposits2,009,154  3,372  0.68%
Total interest bearing deposits3,532,948  7,451  0.86%
FHLB borrowings928,677  3,632  1.59%
Subordinated notes, net of unamortized debt issuance costs98,267  1,398  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,241  569  3.83%
Other borrowings8,103  11  0.55%
Total interest bearing liabilities4,628,236  13,061  1.14%
Noninterest bearing deposits1,016,707     
Accrued expenses and other liabilities44,015     
Total liabilities5,688,958     
Shareholders’ equity753,394     
Total liabilities and shareholders’ equity$6,442,352     
Net interest income (FTE)  $46,334   
Net interest margin (FTE)    3.19%
Net interest spread (FTE)    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 March 31, 2018, loans totaling $34.5 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.

Southside Bancshares, Inc.
Non-GAAP Reconciliation (Unaudited)
(Dollars and shares in thousands, except per share data)

In the following tables we present the reconciliation of return on average common equity to return on average tangible common equity, book value per share to tangible book value per share, net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities, along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE) for the applicable periods presented.

  Three Months Ended
  2019 2018
  Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Reconciliation of return on average common equity
  to return on average tangible common equity:
          
Net Income $18,817  $17,381  $20,303  $20,203  $16,251 
After-tax amortization expense 931  970  1,010  1,049  1,089 
  Adjusted net income available to common shareholders $19,748  $18,351  $21,313  $21,252  $17,340 
           
Average shareholders' equity $737,221  $741,369  $759,409  $750,921  $753,394 
Less: Average intangibles for the period (218,438) (219,645) (220,956) (222,342) (223,708)
  Average tangible shareholders' equity $518,783  $521,724  $538,453  $528,579  $529,686 
           
Return on average tangible common equity 15.44% 13.95% 15.70% 16.13% 13.28%
           
Reconciliation of book value per share to tangible book
  value per share:
          
Common equity at end of period $758,033  $731,291  $752,506  $751,810  $746,396 
Less: Intangible assets at end of period (217,716) (218,895) (220,125) (221,533) (222,861)
  Tangible common shareholders' equity at end of period $540,317  $512,396  $532,381  $530,277  $523,535 
           
Total assets at end of period $6,217,196  $6,123,494  $6,105,354  $6,250,173  $6,373,197 
Less: Intangible assets at end of period (217,716) (218,895) (220,125) (221,533) (222,861)
  Tangible assets at end of period $5,999,480  $5,904,599  $5,885,229  $6,028,640  $6,150,336 
           
Period end tangible equity to period end tangible assets 9.01% 8.68% 9.05% 8.80% 8.51%
           
Common shares outstanding end of period 33,718  33,725  35,160  35,084  35,053 
Tangible book value per common share $16.02  $15.19  $15.14  $15.11  $14.94 
           
Reconciliation of efficiency ratio to efficiency ratio (FTE),
  net interest margin to net interest margin (FTE) and
  net interest spread to net interest spread (FTE):
          
Net interest income (GAAP) $41,125  $42,410  $42,410  $43,111  $44,133 
Tax equivalent adjustments:          
Loans 598  599  590  583  582 
Investment securities (tax-exempt) 1,614  1,933  1,801  1,651  1,619 
Net interest income (FTE) (1) 43,337  44,942  44,801  45,345  46,334 
Noninterest income 9,538  10,134  10,022  11,007  9,610 
Nonrecurring income (2) 171  (66) 741  (304) 827 
Total revenue $53,046  $55,010  $55,564  $56,048  $56,771 
           
Noninterest expense $29,627  $30,196  $28,962  $29,274  $31,667 
Pre-tax amortization expense (1,179) (1,228) (1,279) (1,328) (1,378)
Nonrecurring expense (3) 18  (264) (507) (1,287) (1,178)
Adjusted noninterest expense $28,466  $28,704  $27,176  $26,659  $29,111 
           
Efficiency ratio 56.00% 54.70% 51.11% 49.54% 53.35%
Efficiency ratio (FTE) (1) 53.66% 52.18% 48.91% 47.56% 51.28%
           
Average earning assets $5,733,116  $5,558,052  $5,654,566  $5,700,133  $5,891,352 
           
Net interest margin 2.91% 3.03% 2.98% 3.03% 3.04%
Net interest margin (FTE) (1) 3.07% 3.21% 3.14% 3.19% 3.19%
           
Net interest spread 2.56% 2.68% 2.65% 2.75% 2.80%
Net interest spread (FTE) (1) 2.71% 2.86% 2.82% 2.90% 2.95%

(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, loss on fair value hedge, 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.

Southside-Bancshare-horizontal_color.jpg

Source: Southside Bancshares, Inc.
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