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Press Release

Southside Bancshares, Inc. Announces Financial Results for the Third Quarter Ended September 30, 2019

Company Release - 10/25/2019 6:30 AM ET
  • Third quarter net income was $19.8 million and earnings per diluted common share were $0.58
  • Linked quarter loans increased $39.8 million, or 1.1%, to $3.50 billion from $3.46 billion
  • Third quarter annualized return on average shareholders’ equity of 9.78% and return on average tangible common equity of 13.96% (1)
  • Third quarter annualized return on average assets of 1.23%
  • Linked quarter nonperforming assets as a percent of total assets decreased from 0.46% to 0.45%

TYLER, Texas, Oct. 25, 2019 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the quarter ended September 30, 2019. Southside reported net income of $19.8 million for the three months ended September 30, 2019, a decrease of $0.5 million, or 2.5%, compared to $20.3 million for the same period in 2018. Earnings per diluted common share of $0.58 for the three months ended September 30, 2019 remained unchanged when compared to the same period in 2018. The annualized return on average shareholders’ equity for the three months ended September 30, 2019 was 9.78%, compared to 10.61% for the same period in 2018. The annualized return on average assets was 1.23% for the three months ended September 30, 2019, compared to 1.30% for the same period in 2018.

“I am extremely pleased to report that Southside had an excellent third quarter highlighted by a linked quarter increase in loans of $39.8 million, a 6.4% increase in linked quarter net income and a 5.5% increase in linked quarter diluted earnings per share of $0.03 per share,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “The loan growth in the third quarter was partially offset by several large prepayments.”

“The increase in our linked quarter net income during the third quarter was largely due to a decrease in provision for loan losses of $1.5 million from the prior quarter. Our net interest margin decreased on a linked quarter basis from 3.17% for the second quarter to 3.03% for the third quarter. Most of the growth in average loans and securities was funded by higher cost FHLB advances. In addition, prepayments on mortgage backed securities increased, resulting in an increase in amortization expense.”

“Economic conditions in our East Texas markets remain solid while economic conditions in our DFW and Austin markets continue to be strong. During the third quarter, we received regulatory approval to open our retail in-store branch in Kingwood, Texas. We look forward to opening this branch during the fourth quarter in this high growth market.”

“On September 5, 2019, the Company’s Board of Directors approved a Stock Repurchase Plan, authorizing the repurchase, from time to time, of up to 1 million shares of the Company’s outstanding common stock. During the third quarter we did not purchase any shares of our common stock. During the fourth quarter through October 23rd, we have purchased 25,615 shares at an average price of $33.47.”

Operating Results for the Three Months Ended September 30, 2019

Net income was $19.8 million for the three months ended September 30, 2019 compared with $20.3 million for the same period in 2018, a decrease of $0.5 million, or 2.5%. Earnings per diluted common share of $0.58 for the three months ended September 30, 2019 remained unchanged when compared to the same period in 2018. The decrease in net income was largely driven by the increase in income tax expense, partially offset by an increase in noninterest income. Annualized returns on average assets and average shareholders’ equity for the three months ended September 30, 2019 were 1.23% and 9.78%, respectively. Our efficiency ratio (FTE) was 50.53% (1) for the three months ended September 30, 2019, an improvement from 51.44% for the three months ended June 30, 2019.

Net interest income for each of the three months ended September 30, 2019 and 2018 was $42.4 million. Linked quarter, net interest income decreased $0.8 million, or 1.8%, compared with $43.1 million during the three months ended June 30, 2019. The decrease in net interest income for the linked quarter was due to the increase in interest expense on our interest bearing liabilities, a result of an increase in average interest bearing liabilities during the three months ended September 30, 2019.

Our tax equivalent net interest margin was 3.03% for the three months ended September 30, 2019 compared with 3.14% for the same period in 2018. The decrease was due to a 24 basis point increase in the average cost on interest bearing liabilities which more than offset the 10 basis point increase in the yield on interest earning assets. Our tax equivalent net interest margin decreased 14 basis points compared to 3.17% for the three months ended June 30, 2019. This decrease was due to a decrease in average yield on interest earning assets of 14 basis points and the increase in average interest bearing liabilities.

Noninterest income was $11.1 million for the three months ended September 30, 2019, an increase of 10.9%, compared with $10.0 million for the same period in 2018. The increase was primarily due to an increase in net gain on sale of securities and deposit services income. On a linked quarter basis, noninterest income decreased $0.1 million, or 1.3%, primarily due to the decrease in net gain on sale of securities.

Noninterest expense was $29.0 million for each of the three months ended September 30, 2019 and 2018. On a linked quarter basis, noninterest expense decreased $0.7 million, or 2.3%, compared to the three months ended June 30, 2019, primarily due to decreases in other noninterest expense and FDIC insurance, partially offset by an increase in salaries and employee benefits.

Income tax expense increased $1.5 million for the three months ended September 30, 2019 compared to the same period in 2018. On a linked quarter basis, income tax expense increased $0.1 million. Our effective tax rate (“ETR”) increased to 15.6% for the three months ended September 30, 2019 compared to 9.7% for the three months ended September 30, 2018 and decreased compared to 16.1% for the three months ended June 30, 2019. The higher ETR for the three months ended September 30, 2019, as compared to the same period in 2018, was primarily due to a discrete tax benefit of approximately $800,000 recorded in 2018 associated with the remeasurement of our net deferred tax asset and a decrease in tax-exempt income as a percentage of pre-tax income for the three months ended September 30, 2019.

Operating Results for the Nine Months Ended September 30, 2019

Net income was $57.2 million for the nine months ended September 30, 2019 compared with $56.8 million for the same period in 2018, an increase of $0.5 million, or 0.8%. Net income per diluted common share was $1.69 for the nine months ended September 30, 2019 compared with $1.61 for the same period in 2018, an increase of 5.0%. The increase in net income was largely driven by increases in interest income and noninterest income, as well as the decrease in provision for loan losses and noninterest expense, partially offset by an increase in interest expense and income tax expense. Annualized returns on average assets and average shareholders’ equity for the nine months ended September 30, 2019 were 1.21% and 9.93%, respectively. Our efficiency ratio (FTE) was 51.85% (1) for the nine months ended September 30, 2019.

Net interest income for the nine months ended September 30, 2019 was $126.6 million compared to $129.7 million during the same period in 2018, a decrease of $3.0 million, or 2.3%. The decrease in net interest income was due to an increase in interest expense, a result of the higher funding costs of our interest bearing liabilities. The increase in interest expense was partially offset by the increase in interest income on our interest earning assets, a result of higher rates and a shift in the mix of earning assets.

Our tax equivalent net interest margin was 3.09% for the nine months ended September 30, 2019 compared with 3.17% for the same period in 2018. The decrease was primarily due to the higher rates paid on interest bearing liabilities.

Noninterest income was $31.9 million for the nine months ended September 30, 2019, an increase of 4.1%, compared with $30.6 million for the same period in 2018. The increase was primarily due to an increase in net gain on sale of securities and deposit services income, partially offset by decreases in trust fees, bank owned life insurance, other noninterest income and gain on sale of loans.

Noninterest expense was $88.4 million for the nine months ended September 30, 2019 compared with $89.9 million for the same period in 2018, a decrease of $1.6 million, or 1.7%. The decrease was primarily due to a decrease in acquisition expense, amortization of intangibles and FDIC insurance, partially offset by increases in salaries and employee benefits, professional fees and software and data processing expense.

Income tax expense increased $2.7 million for the nine months ended September 30, 2019 compared to the same period in 2018. Our ETR was approximately 15.3% and 11.9% for the nine months ended September 30, 2019 and 2018, respectively. The higher ETR for the nine months ended September 30, 2019, as compared to the same period in 2018, was primarily due to a discrete tax benefit of approximately $800,000 recorded in 2018 associated with the remeasurement of our net deferred tax asset and a decrease in tax-exempt income as a percentage of pre-tax income for the nine months ended September 30, 2019.

Balance Sheet Data

At September 30, 2019, we had $6.54 billion in total assets compared with $6.12 billion at December 31, 2018 and $6.37 billion at June 30, 2019.

Loans at September 30, 2019 were $3.50 billion, an increase of $187.1 million, or 5.6%, compared with $3.31 billion at December 31, 2018. Linked quarter loans increased $39.8 million, or 1.1%, from $3.46 billion at June 30, 2019. The linked quarter net increase in our loans consisted of increases of $41.5 million of construction loans, $10.6 million of 1-4 family residential loans, $9.9 million of municipal loans and $0.2 million of loans to individuals, partially offset by decreases of $14.9 million of commercial real estate loans and $7.4 million of commercial loans.

Securities at September 30, 2019 were $2.38 billion, an increase of $229.0 million, or 10.6%, compared with $2.15 billion at December 31, 2018. Linked quarter securities increased $145.5 million, or 6.5%, from $2.24 billion at June 30, 2019.

Deposits at September 30, 2019 were $4.49 billion, an increase of $65.7 million, or 1.5%, compared with $4.43 billion at December 31, 2018. Linked quarter deposits increased $11.5 million, or 0.3%, from $4.48 billion at June 30, 2019 primarily due to an increase in brokered deposits, partially offset by decreases in public fund deposits.

Asset Quality

Nonperforming assets at September 30, 2019 were $29.7 million, or 0.45% of total assets, a decrease of $13.2 million, or 30.7%, compared to $42.9 million, or 0.70% of total assets, at December 31, 2018, and an increase of $0.4 million, or 1.3%, from $29.4 million, or 0.46% of total assets, at June 30, 2019. During the three months ended September 30, 2019, our nonaccrual loans increased $0.8 million, or 4.7%.

The allowance for loan losses decreased to $25.1 million, or 0.72% of total loans at September 30, 2019 compared to $27.0 million, or 0.82% of total loans at December 31, 2018 due to a partial reversal of provision after $1.2 million in charge-offs associated with three large nonaccrual commercial real estate loans sold during the first quarter of 2019. The allowance for loan losses at June 30, 2019 was $24.7 million, or 0.71% of total loans.

For each of the three months ended September 30, 2019 and 2018, we recorded provision for loan losses of $1.0 million compared with $2.5 million for the three months ended June 30, 2019. The provision for loan losses for the nine months ended September 30, 2019 was $2.6 million compared with $6.0 million for the nine months ended September 30, 2018.

Net charge-offs were $0.6 million for the three months ended September 30, 2019 compared with a net recovery of $45,000 for the three months ended September 30, 2018 and $2.0 million net charge-offs for the three months ended June 30, 2019. Net charge-offs were $4.5 million for the nine months ended September 30, 2019 compared with $0.7 million for the nine months ended September 30, 2018.

Dividend

Southside Bancshares, Inc. declared a third quarter cash dividend of $0.31 per share on August 8, 2019, which was paid on September 5, 2019, to all shareholders of record as of August 22, 2019.

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(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.


Conference Call

Southside's management team will host a conference call to discuss its third quarter ended September 30, 2019 financial results on Friday, October 25, 2019 at 9:00 a.m. CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 6568586 or by identifying “Southside Bancshares, Inc., Third 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 October 25, 2019 through November 6, 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 nine months ended September 30, 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 reflected 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 $6.54 billion in assets as of September 30, 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 press release and in other written material, documents 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
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
ASSETS         
Cash and due from banks$92,300  $77,319  $81,981  $87,375  $85,103 
Interest earning deposits22,524  54,642  184,612  23,884  70,685 
Federal funds sold  560  3,350  9,460  18,284 
Securities available for sale, at estimated fair value2,240,381  2,088,787  1,876,255  1,989,436  1,939,277 
Securities held to maturity, at carrying value140,955  147,091  147,431  162,931  163,365 
Total securities2,381,336  2,235,878  2,023,686  2,152,367  2,102,642 
Federal Home Loan Bank stock, at cost45,039  44,718  35,269  32,583  32,291 
Loans held for sale1,000  1,812  384  601  954 
Loans3,499,917  3,460,143  3,305,110  3,312,799  3,274,524 
Less: Allowance for loan losses(25,129) (24,705) (24,155) (27,019) (26,092)
Net loans3,474,788  3,435,438  3,280,955  3,285,780  3,248,432 
Premises & equipment, net141,683  140,105  138,290  135,972  133,939 
Goodwill201,116  201,116  201,116  201,116  201,116 
Other intangible assets, net14,391  15,471  16,600  17,779  19,009 
Bank owned life insurance99,916  99,294  98,704  98,160  97,611 
Other assets67,982  66,517  152,249  78,417  95,288 
Total assets$6,542,075  $6,372,870  $6,217,196  $6,123,494  $6,105,354 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,038,695  $1,028,861  $1,038,116  $994,680  $1,033,572 
Interest bearing deposits3,452,072  3,450,395  3,529,777  3,430,350  3,519,940 
Total deposits4,490,767  4,479,256  4,567,893  4,425,030  4,553,512 
Other borrowings and Federal Home Loan Bank borrowings988,577  849,821  628,498  755,875  570,242 
Subordinated notes, net of unamortized debt issuance costs98,532  98,490  98,448  98,407  98,366 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,249  60,248  60,247  60,246  60,244 
Other liabilities93,497  97,290  104,077  52,645  70,484 
Total liabilities5,731,622  5,585,105  5,459,163  5,392,203  5,352,848 
Shareholders' equity810,453  787,765  758,033  731,291  752,506 
Total liabilities and shareholders' equity$6,542,075  $6,372,870  $6,217,196  $6,123,494  $6,105,354 



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

 Three Months Ended
 2019 2018
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Income Statement:         
Total interest income$60,555  $60,672  $59,027  $58,022  $57,152 
Total interest expense18,182  17,541  17,902  15,612  14,742 
Net interest income42,373  43,131  41,125  42,410  42,410 
Provision for loan losses1,005  2,506  (918) 2,446  975 
Net interest income after provision for loan losses41,368  40,625  42,043  39,964  41,435 
Noninterest income         
Deposit services6,753  6,652  5,986  6,325  6,317 
Net gain (loss) on sale of securities available for sale42  416  256  61  (741)
Gain on sale of loans131  181  93  101  303 
Trust fees1,523  1,520  1,541  1,573  1,568 
Bank owned life insurance622  559  544  554  552 
Brokerage services555  477  517  499  532 
Other1,485  1,449  601  1,021  1,491 
Total noninterest income11,111  11,254  9,538  10,134  10,022 
Noninterest expense         
Salaries and employee benefits18,388  17,891  18,046  17,823  17,628 
Net occupancy3,430  3,289  3,175  3,475  3,396 
Acquisition expense      118  437 
Advertising, travel & entertainment593  733  847  786  648 
ATM expense232  246  180  250  251 
Professional fees1,192  1,069  1,314  1,189  824 
Software and data processing1,116  1,086  1,076  1,057  977 
Communications480  489  487  477  354 
FDIC insurance  437  422  455  435 
Amortization of intangibles1,080  1,129  1,179  1,228  1,279 
Other2,515  3,331  2,901  3,338  2,733 
Total noninterest expense29,026  29,700  29,627  30,196  28,962 
Income before income tax expense23,453  22,179  21,954  19,902  22,495 
Income tax expense3,661  3,569  3,137  2,521  2,192 
Net income$19,792  $18,610  $18,817  $17,381  $20,303 
          
Common Share Data:   
Weighted-average basic shares outstanding33,773  33,726  33,697  34,611  35,114 
Weighted-average diluted shares outstanding33,901  33,876  33,846  34,748  35,288 
Common shares outstanding end of period33,795  33,749  33,718  33,725  35,160 
Net income per common share         
Basic$0.59  $0.55  $0.56  $0.50  $0.58 
Diluted0.58  0.55  0.56  0.50  0.58 
Book value per common share23.98  23.34  22.48  21.68  21.40 
Tangible book value per common share (1)17.60  16.92  16.02  15.19  15.14 
Cash dividends paid per common share0.31  0.31  0.30  0.32  0.30 
          
Selected Performance Ratios:         
Return on average assets1.23% 1.20% 1.21% 1.14% 1.30%
Return on average shareholders’ equity9.78  9.68  10.35  9.30  10.61 
Return on average tangible common equity (1)13.96  14.12  15.44  13.95  15.70 
Average yield on earning assets (FTE) (1)4.28  4.42  4.33  4.32  4.18 
Average rate on interest bearing liabilities1.60  1.61  1.62  1.46  1.36 
Net interest spread (FTE) (1)2.68  2.81  2.71  2.86  2.82 
Net interest margin (FTE) (1)3.03  3.17  3.07  3.21  3.14 
Average earning assets to average interest bearing liabilities128.33  128.99  127.70  131.07  131.12 
Noninterest expense to average total assets1.80  1.91  1.91  1.98  1.86 
Efficiency ratio (FTE) (1)50.53  51.44  53.66  52.18  48.91 
  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
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Nonperforming Assets:$29,747  $29,363  $38,111  $42,906  $39,638 
Nonaccrual loans (1)17,148  16,376  17,691  35,770  32,526 
Accruing loans past due more than 90 days (1)    7,927     
Restructured loans (2)11,683  11,918  11,490  5,930  5,699 
Other real estate owned912  1,069  978  1,206  1,413 
Repossessed assets4    25     
          
Asset Quality Ratios:         
Nonaccruing loans to total loans0.49% 0.47% 0.54% 1.08% 0.99%
Allowance for loan losses to nonaccruing loans146.54  150.86  136.54  75.54  80.22 
Allowance for loan losses to nonperforming assets84.48  84.14  63.38  62.97  65.83 
Allowance for loan losses to total loans0.72  0.71  0.73  0.82  0.80 
Nonperforming assets to total assets0.45  0.46  0.61  0.70  0.65 
Net charge-offs (recoveries) to average loans0.07  0.23  0.24  0.18  (0.01)
          
Capital Ratios:         
Shareholders’ equity to total assets12.39  12.36  12.19  11.94  12.33 
Common equity tier 1 capital14.19  14.02  14.38  14.77  15.90 
Tier 1 risk-based capital15.61  15.46  15.88  16.29  17.43 
Total risk-based capital18.65  18.52  19.06  19.59  20.75 
Tier 1 leverage capital10.46  10.48  10.18  10.64  11.06 
Period end tangible equity to period end tangible assets (3)9.40  9.28  9.01  8.68  9.05 
Average shareholders’ equity to average total assets12.54  12.36  11.70  12.23  12.28 
  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 $0.8 million, $0.8 million, $0.7 million, $3.1 million and $3.2 million in PCI loans restructured as of September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.
  3. 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
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Real Estate Loans:         
Construction$621,040  $579,565  $603,411  $507,732  $484,254 
1-4 Family Residential792,638  782,073  786,198  794,499  791,274 
Commercial1,236,307  1,251,248  1,104,378  1,194,118  1,218,714 
Commercial Loans382,077  389,521  367,995  356,649  322,873 
Municipal Loans366,906  357,028  343,026  353,370  344,792 
Loans to Individuals100,949  100,708  100,102  106,431  112,617 
Total Loans$3,499,917  $3,460,143  $3,305,110  $3,312,799  $3,274,524 



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

 Nine Months Ended
 September 30,
 2019 2018
Income Statement:   
Total interest income$180,254  $171,143 
Total interest expense53,625  41,489 
Net interest income126,629  129,654 
Provision for loan losses2,593  5,991 
Net interest income after provision for loan losses124,036  123,663 
Noninterest income   
Deposit services19,391  18,757 
Net gain (loss) on sale of securities available for sale714  (1,900)
Gain on sale of loans405  591 
Trust fees4,584  5,259 
Bank owned life insurance1,725  2,369 
Brokerage services1,549  1,488 
Other3,535  4,075 
Total noninterest income31,903  30,639 
Noninterest expense   
Salaries and employee benefits54,325  52,820 
Net occupancy9,894  10,339 
Acquisition expense  2,295 
Advertising, travel & entertainment2,173  2,108 
ATM expense658  840 
Professional fees3,575  2,846 
Software and data processing3,278  2,939 
Communications1,456  1,370 
FDIC insurance859  1,416 
Amortization of intangibles3,388  3,985 
Other8,747  8,945 
Total noninterest expense88,353  89,903 
Income before income tax expense67,586  64,399 
Income tax expense10,367  7,642 
Net income$57,219  $56,757 
    
Common Share Data:   
Weighted-average basic shares outstanding33,732  35,066 
Weighted-average diluted shares outstanding33,878  35,241 
Common shares outstanding end of period33,795  35,160 
Net income per common share   
Basic$1.70  $1.62 
Diluted1.69  1.61 
Book value per common share23.98  21.40 
Tangible book value per common share (1)17.60  15.14 
Cash dividends paid per common share0.92  0.88 
    
Selected Performance Ratios:   
Return on average assets1.21% 1.21%
Return on average shareholders’ equity9.93  10.06 
Return on average tangible common equity (1)14.47  15.05 
Average yield on earning assets (FTE) (1)4.34  4.14 
Average rate on interest bearing liabilities1.61  1.25 
Net interest spread (FTE) (1)2.73  2.89 
Net interest margin (FTE) (1)3.09  3.17 
Average earning assets to average interest bearing liabilities128.34  129.51 
Noninterest expense to average total assets1.87  1.91 
Efficiency ratio (FTE) (1)51.85  49.26 
  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)

 Nine Months Ended
 September 30,
 2019 2018
Nonperforming Assets:$29,747  $39,638 
Nonaccrual loans (1)17,148  32,526 
Accruing loans past due more than 90 days (1)   
Restructured loans (2)11,683  5,699 
Other real estate owned912  1,413 
Repossessed assets4   
    
Asset Quality Ratios:   
Nonaccruing loans to total loans0.49% 0.99%
Allowance for loan losses to nonaccruing loans146.54  80.22 
Allowance for loan losses to nonperforming assets84.48  65.83 
Allowance for loan losses to total loans0.72  0.80 
Nonperforming assets to total assets0.45  0.65 
Net charge-offs (recoveries) to average loans0.18  0.03 
    
Capital Ratios:   
Shareholders’ equity to total assets12.39  12.33 
Common equity tier 1 capital14.19  15.90 
Tier 1 risk-based capital15.61  17.43 
Total risk-based capital18.65  20.75 
Tier 1 leverage capital10.46  11.06 
Period end tangible equity to period end tangible assets (3)9.40  9.05 
Average shareholders’ equity to average total assets12.21  12.01 
  1. Excludes 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 $0.8 million and $3.2 million in PCI loans restructured as of September 30, 2019 and September 30, 2018, respectively.
  3. 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.



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.

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

 Three Months Ended
 September 30, 2019 June 30, 2019
 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS           
Loans (1)$3,477,187  $43,780  5.00% $3,387,323  $43,559  5.16%
Loans held for sale2,497  26  4.13% 1,965  21  4.29%
Securities:           
Taxable investment securities (2)3,000  26  3.44% 3,000  27  3.61%
Tax-exempt investment securities (2)555,835  5,328  3.80% 459,996  4,513  3.94%
Mortgage-backed and related securities (2)1,660,331  12,569  3.00% 1,680,109  13,246  3.16%
Total securities2,219,166  17,923  3.20% 2,143,105  17,786  3.33%
Federal Home Loan Bank stock, at cost, and equity investments57,108  422  2.93% 52,311  440  3.37%
Interest earning deposits26,746  206  3.06% 66,017  411  2.50%
Federal funds sold      3,365  39  4.65%
Total earning assets5,782,704  62,357  4.28% 5,654,086  62,256  4.42%
Cash and due from banks73,815      78,757     
Accrued interest and other assets570,657      534,835     
Less: Allowance for loan losses(24,938)     (24,838)    
Total assets$6,402,238      $6,242,840     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$367,615  270  0.29% $365,205  262  0.29%
Certificates of deposits1,118,410  6,011  2.13% 1,119,464  5,861  2.10%
Interest bearing demand accounts1,966,764  5,085  1.03% 1,969,593  5,334  1.09%
Total interest bearing deposits3,452,789  11,366  1.31% 3,454,262  11,457  1.33%
Federal Home Loan Bank borrowings881,088  4,647  2.09% 755,748  3,899  2.07%
Subordinated notes, net of unamortized debt issuance costs98,511  1,425  5.74% 98,469  1,410  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,248  685  4.51% 60,247  718  4.78%
Other borrowings13,401  59  1.75% 14,530  57  1.57%
Total interest bearing liabilities4,506,037  18,182  1.60% 4,383,256  17,541  1.61%
Noninterest bearing deposits1,020,325      1,014,746     
Accrued expenses and other liabilities72,923      73,494     
Total liabilities5,599,285      5,471,496     
Shareholders’ equity802,953      771,344     
Total liabilities and shareholders’ equity$6,402,238      $6,242,840     
Net interest income (FTE)  $44,175      $44,715   
Net interest margin (FTE)    3.03%     3.17%
Net interest spread (FTE)    2.68%     2.81%
  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, 2019 and June 30, 2019, loans totaling $17.1 million and $16.4 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, 2019 December 31, 2018
 Average Balance Interest Average Yield/Rate Average Balance Interest Average 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:           
Taxable investment securities (2)3,000  28  3.79% 13,066  103  3.13%
Tax-exempt investment securities (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%
Federal Home Loan Bank 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 accounts$360,664  258  0.29% $361,407  257  0.28%
Certificates of deposit1,154,203  5,697  2.00% 1,123,101  5,170  1.83%
Interest bearing demand accounts1,982,891  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%
Federal Home Loan Bank 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
 Average Balance Interest Average Yield/Rate
ASSETS     
Loans (1)$3,286,664  $40,396  4.88%
Loans held for sale1,841  25  5.39%
Securities:     
Taxable investment securities (2)4,285  36  3.33%
Tax-exempt investment securities (2)795,397  8,132  4.06%
Mortgage-backed and related securities (2)1,418,114  10,086  2.82%
Total securities2,217,796  18,254  3.27%
Federal Home Loan Bank stock, at cost, and equity investments54,216  377  2.76%
Interest earning deposits77,977  414  2.11%
Federal funds sold16,072  77  1.90%
Total earning assets5,654,566  59,543  4.18%
Cash and due from banks78,623     
Accrued interest and other assets477,737     
Less: Allowance for loan losses(25,646)    
Total assets$6,185,280     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings accounts$362,405  258  0.28%
Certificates of deposit1,173,672  4,744  1.60%
Interest bearing demand accounts1,953,904  4,495  0.91%
Total interest bearing deposits3,489,981  9,497  1.08%
Federal Home Loan Bank borrowings654,153  3,108  1.88%
Subordinated notes, net of unamortized debt issuance costs98,346  1,423  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,244  684  4.50%
Other borrowings9,651  30  1.23%
Total interest bearing liabilities4,312,375  14,742  1.36%
Noninterest bearing deposits1,064,797     
Accrued expenses and other liabilities48,699     
Total liabilities5,425,871     
Shareholders’ equity759,409     
Total liabilities and shareholders’ equity$6,185,280     
Net interest income (FTE)  $44,801   
Net interest margin (FTE)    3.14%
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, 2018, loans totaling $32.5 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.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)

 Nine Months Ended
 September 30, 2019 September 30, 2018
 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
ASSETS           
Loans (1)$3,387,719  $129,549  5.11% $3,290,925  $119,662  4.86%
Loans held for sale1,698  54  4.25% 1,727  55  4.26%
Securities:           
Taxable investment securities (2)3,000  81  3.61% 16,707  314  2.51%
Tax-exempt investment securities (2)557,961  15,573  3.73% 800,998  24,136  4.03%
Mortgage-backed and related securities (2)1,662,715  38,289  3.08% 1,471,179  31,190  2.83%
Total securities2,223,676  53,943  3.24% 2,288,884  55,640  3.25%
Federal Home Loan Bank stock, at cost, and equity investments54,407  1,217  2.99% 58,601  1,202  2.74%
Interest earning deposits52,345  1,003  2.56% 92,477  1,213  1.75%
Federal funds sold3,639  86  3.16% 15,202  197  1.73%
Total earning assets5,723,484  185,852  4.34% 5,747,816  177,969  4.14%
Cash and due from banks78,539      77,407     
Accrued interest and other assets538,248      481,279     
Less: Allowance for loan losses(25,604)     (23,753)    
Total assets$6,314,667      $6,282,749     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$364,520  790  0.29% $358,870  650  0.24%
Certificates of deposit1,130,561  17,569  2.08% 1,173,000  12,942  1.48%
Interest bearing demand accounts1,973,024  15,705  1.06% 1,981,293  11,937  0.81%
Total interest bearing deposits3,468,105  34,064  1.31% 3,513,163  25,529  0.97%
Federal Home Loan Bank borrowings817,978  13,003  2.13% 757,399  9,747  1.72%
Subordinated notes, net of unamortized debt issuance costs98,470  4,235  5.75% 98,307  4,228  5.75%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,247  2,132  4.73% 60,242  1,911  4.24%
Other borrowings14,894  191  1.71% 9,018  74  1.10%
Total interest bearing liabilities4,459,694  53,625  1.61% 4,438,129  41,489  1.25%
Noninterest bearing deposits1,007,263      1,042,432     
Accrued expenses and other liabilities76,963      47,591     
Total liabilities5,543,920      5,528,152     
Shareholders’ equity770,747      754,597     
Total liabilities and shareholders’ equity$6,314,667      $6,282,749     
Net interest income (FTE)  $132,227      $136,480   
Net interest margin (FTE)    3.09%     3.17%
Net interest spread (FTE)    2.73%     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 September 30, 2019 and 2018, loans totaling $17.1 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.



The following tables set forth 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.

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

  Three Months Ended Nine Months Ended
  2019 2018 2019 2018
  Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
Reconciliation of return on average common equity to return on average tangible common equity:              
Net income $19,792  $18,610  $18,817  $17,381  $20,303  $57,219  $56,757 
After-tax amortization expense 853  892  931  970  1,010  2,677  3,148 
Adjusted net income available to common shareholders $20,645  $19,502  $19,748  $18,351  $21,313  $59,896  $59,905 
Average shareholders' equity $802,953  $771,344  $737,221  $741,369  $759,409  $770,747  $754,597 
Less: Average intangibles for the period (216,169) (217,266) (218,438) (219,645) (220,956) (217,283) (222,325)
  Average tangible shareholders' equity $586,784  $554,078  $518,783  $521,724  $538,453  $553,464  $532,272 
Return on average tangible common equity 13.96% 14.12% 15.44% 13.95% 15.70% 14.47% 15.05%
Reconciliation of book value per share to tangible book value per share:              
Common equity at end of period $810,453  $787,765  $758,033  $731,291  $752,506  $810,453  $752,506 
Less: Intangible assets at end of period (215,507) (216,587) (217,716) (218,895) (220,125) (215,507) (220,125)
Tangible common shareholders' equity at end of period $594,946  $571,178  $540,317  $512,396  $532,381  $594,946  $532,381 
Total assets at end of period $6,542,075  $6,372,870  $6,217,196  $6,123,494  $6,105,354  $6,542,075  $6,105,354 
Less: Intangible assets at end of period (215,507) (216,587) (217,716) (218,895) (220,125) (215,507) (220,125)
Tangible assets at end of period $6,326,568  $6,156,283  $5,999,480  $5,904,599  $5,885,229  $6,326,568  $5,885,229 
Period end tangible equity to period end tangible assets 9.40% 9.28% 9.01% 8.68% 9.05% 9.40% 9.05%
Common shares outstanding end of period 33,795  33,749  33,718  33,725  35,160  33,795  35,160 
Tangible book value per common share $17.60  $16.92  $16.02  $15.19  $15.14  $17.60  $15.14 
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) $42,373  $43,131  $41,125  $42,410  $42,410  $126,629  $129,654 
Tax equivalent adjustments:              
Loans 641  598  598  599  590  1,837  1,755 
Tax-exempt investment securities 1,161  986  1,614  1,933  1,801  3,761  5,071 
Net interest income (FTE) (1) 44,175  44,715  43,337  44,942  44,801  132,227  136,480 
Noninterest income 11,111  11,254  9,538  10,134  10,022  31,903  30,639 
Nonrecurring income (2) (42) (557) 171  (66) 741  (428) 1,264 
Total revenue $55,244  $55,412  $53,046  $55,010  $55,564  $163,702  $168,383 
Noninterest expense $29,026  $29,700  $29,627  $30,196  $28,962  $88,353  $89,903 
Pre-tax amortization expense (1,080) (1,129) (1,179) (1,228) (1,279) (3,388) (3,985)
Nonrecurring expense (3) (33) (67) 18  (264) (507) (82) (2,972)
Adjusted noninterest expense $27,913  $28,504  $28,466  $28,704  $27,176  $84,883  $82,946 
Efficiency ratio 52.23% 52.95% 56.00% 54.70% 51.11% 53.69% 51.34%
Efficiency ratio (FTE) (1) 50.53% 51.44% 53.66% 52.18% 48.91% 51.85% 49.26%
Average earning assets $5,782,704  $5,654,086  $5,733,116  $5,558,052  $5,654,566  $5,723,484  $5,747,816 
Net interest margin 2.91% 3.06% 2.91% 3.03% 2.98% 2.96% 3.02%
Net interest margin (FTE) (1) 3.03% 3.17% 3.07% 3.21% 3.14% 3.09% 3.17%
Net interest spread 2.55% 2.69% 2.56% 2.68% 2.65% 2.60% 2.73%
Net interest spread (FTE) (1) 2.68% 2.81% 2.71% 2.86% 2.82% 2.73% 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, 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.

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Source: Southside Bancshares, Inc.
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