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Press Release

Southside Bancshares, Inc. Announces Financial Results for the Fourth Quarter and Year Ended December 31, 2019

Company Release - 1/31/2020 6:30 AM ET
  • Linked quarter loans increased $68.3 million, or 2.0%, to $3.57 billion from $3.50 billion

  • Linked quarter nonperforming assets as a percent of total assets decreased from 0.45% to 0.26%

  • Fourth quarter net income was $17.3 million and earnings per diluted common share were $0.51

  • Fourth quarter annualized return on average assets of 1.03%

TYLER, Texas, Jan. 31, 2020 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the quarter and year ended December 31, 2019.  Southside reported net income of $17.3 million for the three months ended December 31, 2019, a decrease of $46,000, or 0.3%, compared to $17.4 million for the same period in 2018.  Earnings per diluted common share increased $0.01, or 2.0%, to $0.51 for the three months ended December 31, 2019, from $0.50 for the same period in 2018.  The annualized return on average shareholders’ equity for the three months ended December 31, 2019 was 8.42%, compared to 9.30% for the same period in 2018.  The annualized return on average assets was 1.03% for the three months ended December 31, 2019, compared to 1.14% for the same period in 2018.

“I am pleased to report Southside enjoyed a solid year in 2019, as earnings per share increased 4.3% to $2.20, loan growth of 7.7%, or $255.4 million, exceeding our original projections, and nonaccrual loans decreased 86.1%, or $30.8 million,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “At December 31, 2019, our nonperforming assets to total assets ratio decreased to 0.26%.”

“For the quarter ended December 31, 2019, provision for loan losses increased $1.5 million on a linked quarter basis largely due to a partial charge-off of a previously reported nonaccrual loan that paid off in the fourth quarter. Linked quarter, our net interest spread and margin declined two and five basis points, respectively, primarily due to securities increasing more than loans and representing a larger percentage of average earning assets when compared to the third quarter.”

“In November we opened our 60th branch location in Kingwood, just north of Houston. We have loaned into the Houston market for several years and have recently hired a commercial lender designated to this market.  In addition, we anticipate filing an application to open a loan production office within the greater Houston area, which is subject to regulatory approval.”

“The Texas economy remains strong as company relocations and expansions continue to drive both job and population growth.”

Operating Results for the Three Months Ended December 31, 2019

Net income was $17.3 million for the three months ended December 31, 2019, compared to $17.4 million for the same period in 2018, a decrease of $46,000, or 0.3%.  Earnings per diluted common share were $0.51 for the three months ended December 31, 2019, compared to $0.50 for the same period in 2018.  Annualized returns on average assets and average shareholders’ equity for the three months ended December 31, 2019 were 1.03% and 8.42%, respectively.  Our efficiency ratio (FTE) was 53.87% (1) for the three months ended December 31, 2019, compared to 50.53% for the three months ended September 30, 2019.

Net interest income for the three months ended December 31, 2019 was $43.2 million compared to $42.4 million for the same period in 2018.  Linked quarter, net interest income increased $0.8 million, or 1.9%, compared to $42.4 million during the three months ended September 30, 2019.  The increase in net interest income for the linked quarter was due to the decrease in interest expense on our interest bearing liabilities, a result of a decrease in average rate paid on our interest bearing liabilities during the three months ended December 31, 2019.

Our tax equivalent net interest margin was 2.98% for the three months ended December 31, 2019 compared to 3.21% for the same period in 2018.  The decrease was due to a decrease in average yield on interest earning assets of 20 basis points and an increase in average interest bearing liabilities, partially offset by an increase in interest earnings assets.  The average rate paid on interest bearing liabilities was 1.46% for the three months ended December 31, 2019 and 2018.  Our tax equivalent net interest margin decreased 5 basis points compared to 3.03% for the three months ended September 30, 2019.  This decrease was due to a decrease in the average yield on interest earning assets of 16 basis points and the increase in average interest bearing liabilities.

Noninterest income was $10.5 million for the three months ended December 31, 2019, an increase of 3.3%, compared to $10.1 million for the same period in 2018.  The increase was primarily due to an increase in deposit services income and trust fees.  On a linked quarter basis, noninterest income decreased $0.6 million, or 5.8%, primarily due to a decrease in swap fee income and fair value of written loan commitments, both included in other noninterest income.

Noninterest expense was $30.9 million for the three months ended December 31, 2019, an increase of 2.5%, compared to $30.2 million for the same period in 2018. The increase was due to an increase in salaries and employee benefits, partially offset by decreases in net occupancy expense and FDIC insurance expense. On a linked quarter basis, noninterest expense increased $1.9 million, or 6.6%, compared to the three months ended September 30, 2019.  The $1.0 million increase in salaries and employee benefits was primarily related to employee benefits, which included $0.6 million of increase in health insurance expense and $0.2 million in salaries and payroll taxes.  Additionally, we incurred losses on the disposition of certain assets of approximately $0.6 million, included in other noninterest expense.

Income tax expense increased $0.3 million for the three months ended December 31, 2019 compared to the same period in 2018.  On a linked quarter basis, income tax expense decreased $0.8 million.  Our effective tax rate (“ETR”) increased to 14.1% for the three months ended December 31, 2019 compared to 12.7% for the three months ended December 31, 2018 and decreased compared to 15.6% for the three months ended September 30, 2019.  The higher ETR for the three months ended December 31, 2019, as compared to the same period in 2018, was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income for the three months ended December 31, 2019.

Operating Results for the Year Ended December 31, 2019

Net income was $74.6 million for the year ended December 31, 2019 compared to $74.1 million for the same period in 2018, an increase of $0.4 million, or 0.6%.  Earnings per diluted common share was $2.20 for the year ended December 31, 2019 compared to $2.11 for the same period in 2018, an increase of 4.3%.  The increase in net income was largely driven by increases in interest income and the net gain on the sale of available for sale securities, as well as the decrease in provision for loan losses, partially offset by an increase in interest expense and income tax expense.  Returns on average assets and average shareholders’ equity for the year ended December 31, 2019 were 1.17% and 9.53%, respectively.  Our efficiency ratio (FTE) was 52.36% (1) for the year ended December 31, 2019.

Net interest income for the year ended December 31, 2019 was $169.8 million, compared to $172.1 million during the same period in 2018, a decrease of $2.3 million, or 1.3%.  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 and, to a lesser extent, an increase in the average balance 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 interest rates and a shift in the mix of earning assets.

Our tax equivalent net interest margin was 3.06% for the year ended December 31, 2019, compared to 3.18% for the same period in 2018.  The decrease was primarily due to the higher rates paid on interest bearing liabilities and the increase in average interest bearing liabilities.

Noninterest income was $42.4 million for the year ended December 31, 2019, an increase of 3.9%, compared to $40.8 million for the same period in 2018.  The increase was primarily due to an increase in net gain on sale of securities available for sale and deposit services income, partially offset by decreases in other noninterest income, bank owned life insurance, trust fees and gain on sale of loans.

Noninterest expense was $119.3 million for the year ended December 31, 2019, compared to $120.1 million for the same period in 2018, a decrease of $0.8 million, or 0.7%.  The decrease was primarily due to a decrease in acquisition expense, FDIC insurance, amortization of intangibles and net occupancy expense, partially offset by increases in salaries and employee benefits, professional fees and software and data processing expense.

Income tax expense increased $3.1 million for the year ended December 31, 2019, compared to the same period in 2018.  Our ETR was approximately 15.1% and 12.1% for the years ended December 31, 2019 and 2018, respectively. The higher ETR for the year ended December 31, 2019, as compared to the same period in 2018, was primarily due to a decrease in tax-exempt income as a percentage of pre-tax income for the year ended December 31, 2019 and a discrete tax benefit of approximately $0.8 million recorded in 2018 associated with the remeasurement of our net deferred tax asset.

Balance Sheet Data

At December 31, 2019, we had $6.75 billion in total assets, compared to $6.12 billion at December 31, 2018 and $6.54 billion at September 30, 2019.

Loans at December 31, 2019 were $3.57 billion, an increase of $255.4 million, or 7.7%, compared to $3.31 billion at December 31, 2018.  Linked quarter loans increased $68.3 million, or 2.0%, from $3.50 billion at September 30, 2019.  The linked quarter net increase in our loans consisted of increases of $23.9 million of construction loans, $19.4 million of commercial loans, $17.1 million of municipal loans and $13.9 million of commercial real estate loans, partially offset by decreases of $5.1 million of 1-4 family residential loans and $0.9 million of loans to individuals.

Securities at December 31, 2019 were $2.49 billion, an increase of $341.1 million, or 15.8%, compared to $2.15 billion at December 31, 2018.  Linked quarter securities increased $112.1 million, or 4.7%, from $2.38 billion at September 30, 2019.

Deposits at December 31, 2019 were $4.70 billion, an increase of $277.7 million, or 6.3%, compared to $4.43 billion at December 31, 2018.  Linked quarter deposits increased $212.0 million, or 4.7%, from $4.49 billion at September 30, 2019, primarily due to an increase in public fund deposits, partially offset by decreases in brokered deposits.

Asset Quality

Nonperforming assets at December 31, 2019 were $17.4 million, or 0.26% of total assets, a decrease of $25.5 million, or 59.3%, compared to $42.9 million, or 0.70% of total assets, at December 31, 2018, and a decrease of $12.3 million, or 41.3%, from $29.7 million, or 0.45% of total assets, at September 30, 2019.  During the three months ended December 31, 2019, our nonaccrual loans decreased $12.2 million, or 71.1%.

The allowance for loan losses decreased to $24.8 million, or 0.69% of total loans, at December 31, 2019 compared to $27.0 million, or 0.82% of total loans, at December 31, 2018, due to a partial reversal of provision during the first quarter of 2019 associated with the sale of three large nonaccrual commercial real estate loans and a decrease in our classified loans during 2019, partially offset by growth in the loan portfolio.  The allowance for loan losses at September 30, 2019 was $25.1 million, or 0.72% of total loans.

For the three months ended December 31, 2019, we recorded provision for loan losses of $2.5 million, compared to $2.4 million for the three months ended December 31, 2018 and $1.0 million for the three months ended September 30, 2019.  The provision for loan losses for the year ended December 31, 2019 was $5.1 million, compared to $8.4 million for the year ended December 31, 2018.

Net charge-offs were $2.8 million for the three months ended December 31, 2019, compared to net charge-offs of $1.5 million for the three months ended December 31, 2018 and $0.6 million net charge-offs for the three months ended September 30, 2019.  Net charge-offs were $7.3 million for the year ended December 31, 2019, compared to $2.2 million for the year ended December 31, 2018.

Dividend

Southside Bancshares, Inc. declared a fourth quarter cash dividend of $0.31 and a special cash dividend of $0.03 per share on November 7, 2019, which was paid on December 12, 2019, to all shareholders of record as of November 27, 2019.

_______________

(1)  Refer to “Non-GAAP Financial Measures” below and to “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 fourth quarter and year ended December 31, 2019 financial results on Friday, January 31, 2020 at 9:00 a.m. CST.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 1545889 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 2019 Earnings Call.”  To listen to the call via webcast, register at https://investors.southside.com.

For those unable to listen to the conference call live, a recording will be available from approximately 12:00 p.m. CSTJanuary 31, 2020 through 12:00 p.m. CSTFebruary 12, 2020 by accessing the company website, https://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 year ended December 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 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 $6.75 billion in assets as of December 31, 2019, that owns 100% of Southside Bank.  Southside Bank currently has 60 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 https://investors.southside.com.  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 Bailes 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
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
ASSETS                   
Cash and due from banks$66,949  $92,300  $77,319  $81,981  $87,375 
Interest earning deposits43,748  22,524  54,642  184,612  23,884 
Federal funds sold    560  3,350  9,460 
Securities available for sale, at estimated fair value2,358,597  2,240,381  2,088,787  1,876,255  1,989,436 
Securities held to maturity, at carrying value134,863  140,955  147,091  147,431  162,931 
Total securities2,493,460  2,381,336  2,235,878  2,023,686  2,152,367 
Federal Home Loan Bank stock, at cost50,087  45,039  44,718  35,269  32,583 
Loans held for sale383  1,000  1,812  384  601 
Loans3,568,204  3,499,917  3,460,143  3,305,110  3,312,799 
Less: Allowance for loan losses(24,797) (25,129) (24,705) (24,155) (27,019)
Net loans3,543,407  3,474,788  3,435,438  3,280,955  3,285,780 
Premises & equipment, net143,912  141,683  140,105  138,290  135,972 
Goodwill201,116  201,116  201,116  201,116  201,116 
Other intangible assets, net13,361  14,391  15,471  16,600  17,779 
Bank owned life insurance100,498  99,916  99,294  98,704  98,160 
Other assets91,992  67,982  66,517  152,249  78,417 
Total assets$6,748,913  $6,542,075  $6,372,870  $6,217,196  $6,123,494 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Noninterest bearing deposits$1,040,112  $1,038,695  $1,028,861  $1,038,116  $994,680 
Interest bearing deposits3,662,657  3,452,072  3,450,395  3,529,777  3,430,350 
Total deposits4,702,769  4,490,767  4,479,256  4,567,893  4,425,030 
Other borrowings and Federal Home Loan Bank borrowings1,001,102  988,577  849,821  628,498  755,875 
Subordinated notes, net of unamortized debt
issuance costs
98,576  98,532  98,490  98,448  98,407 
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,250  60,249  60,248  60,247  60,246 
Other liabilities81,636  93,497  97,290  104,077  52,645 
Total liabilities5,944,333  5,731,622  5,585,105  5,459,163  5,392,203 
Shareholders' equity804,580  810,453  787,765  758,033  731,291 
Total liabilities and shareholders' equity$6,748,913  $6,542,075  $6,372,870  $6,217,196  $6,123,494 


Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars and shares in thousands, except per share data)
 
 Three Months Ended
 2019 2018
          
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 
Income Statement:                    
Total interest income$60,533  $60,555  $60,672  $59,027  $58,022 
Total interest expense17,357  18,182  17,541  17,902  15,612 
Net interest income43,176  42,373  43,131  41,125  42,410 
Provision for loan losses2,508  1,005  2,506  (918) 2,446 
Net interest income after provision for loan losses40,668  41,368  40,625  42,043  39,964 
Noninterest income         
Deposit services6,647  6,753  6,652  5,986  6,325 
Net gain on sale of securities available for sale42  42  416  256  61 
Gain on sale of loans104  131  181  93  101 
Trust fees1,685  1,523  1,520  1,541  1,573 
Bank owned life insurance582  622  559  544  554 
Brokerage services531  555  477  517  499 
Other874  1,485  1,449  601  1,021 
Total noninterest income10,465  11,111  11,254  9,538  10,134 
Noninterest expense         
Salaries and employee benefits19,406  18,388  17,891  18,046  17,823 
Net occupancy3,234  3,430  3,289  3,175  3,475 
Acquisition expense        118 
Advertising, travel & entertainment791  593  733  847  786 
ATM expense236  232  246  180  250 
Professional fees1,142  1,192  1,069  1,314  1,189 
Software and data processing1,259  1,116  1,086  1,076  1,057 
Communications485  480  489  487  477 
FDIC insurance    437  422  455 
Amortization of intangibles1,030  1,080  1,129  1,179  1,228 
Other3,361  2,515  3,331  2,901  3,338 
Total noninterest expense30,944  29,026  29,700  29,627  30,196 
Income before income tax expense20,189  23,453  22,179  21,954  19,902 
Income tax expense2,854  3,661  3,569  3,137  2,521 
Net income$17,335  $19,792  $18,610  $18,817  $17,381 
          
Common Share Data:   
Weighted-average basic shares outstanding33,790  33,773  33,726  33,697  34,611 
Weighted-average diluted shares outstanding33,934  33,901  33,876  33,846  34,748 
Common shares outstanding end of period33,823  33,795  33,749  33,718  33,725 
Earnings per common share         
Basic$0.51  $0.59  $0.55  $0.56  $0.50 
Diluted0.51  0.58  0.55  0.56  0.50 
Book value per common share23.79  23.98  23.34  22.48  21.68 
Tangible book value per common share (1)17.45  17.60  16.92  16.02  15.19 
Cash dividends paid per common share0.34  0.31  0.31  0.30  0.32 
          
Selected Performance Ratios:         
Return on average assets1.03% 1.23% 1.20% 1.21% 1.14%
Return on average shareholders’ equity8.42  9.78  9.68  10.35  9.30 
Return on average tangible common equity (1)11.97  13.96  14.12  15.44  13.95 
Average yield on earning assets (FTE) (1)4.12  4.28  4.42  4.33  4.32 
Average rate on interest bearing liabilities1.46  1.60  1.61  1.62  1.46 
Net interest spread (FTE) (1)2.66  2.68  2.81  2.71  2.86 
Net interest margin (FTE) (1)2.98  3.03  3.17  3.07  3.21 
Average earning assets to average interest bearing liabilities128.00  128.33  128.99  127.70  131.07 
Noninterest expense to average total assets1.85  1.80  1.91  1.91  1.98 
Efficiency ratio (FTE) (1)53.87  50.53  51.44  53.66  52.18 
 
(1) Refer to “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
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 
Nonperforming Assets: $17,449  $29,747  $29,363  $38,111  $42,906 
Nonaccrual loans (1)4,963   17,148   16,376   17,691   35,770 
Accruing loans past due more than 90 days (1)         7,927    
Restructured loans (2)12,014   11,683   11,918   11,490   5,930 
Other real estate owned472   912   1,069   978   1,206 
Repossessed assets   4      25    
              
Asset Quality Ratios:             
Nonaccruing loans to total loans0.14%  0.49%  0.47%  0.54%  1.08%
Allowance for loan losses to nonaccruing loans499.64   146.54   150.86   136.54   75.54 
Allowance for loan losses to nonperforming assets142.11   84.48   84.14   63.38   62.97 
Allowance for loan losses to total loans0.69   0.72   0.71   0.73   0.82 
Nonperforming assets to total assets0.26   0.45   0.46   0.61   0.70 
Net charge-offs (recoveries) to average loans0.32   0.07   0.23   0.24   0.18 
              
Capital Ratios:             
Shareholders’ equity to total assets11.92   12.39   12.36   12.19   11.94 
Common equity tier 1 capital14.07   14.19   14.02   14.38   14.77 
Tier 1 risk-based capital15.46   15.61   15.46   15.88   16.29 
Total risk-based capital18.43   18.65   18.52   19.06   19.59 
Tier 1 leverage capital10.18   10.46   10.48   10.18   10.64 
Period end tangible equity to period end tangible assets (3)9.03   9.40   9.28   9.01   8.68 
Average shareholders’ equity to average total assets12.28   12.54   12.36   11.70   12.23 
 
(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, $0.8 million, $0.7 million and $3.1 million in PCI loans restructured as of December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 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
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 
Real Estate Loans:                    
Construction$644,948  $621,040  $579,565  $603,411  $507,732 
1-4 Family Residential787,562  792,638  782,073  786,198  794,499 
Commercial1,250,208  1,236,307  1,251,248  1,104,378  1,194,118 
Commercial Loans401,521  382,077  389,521  367,995  356,649 
Municipal Loans383,960  366,906  357,028  343,026  353,370 
Loans to Individuals100,005  100,949  100,708  100,102  106,431 
Total Loans$3,568,204  $3,499,917  $3,460,143  $3,305,110  $3,312,799 


Southside Bancshares, Inc.
Consolidated Financial Highlights (Unaudited)
(Dollars and shares in thousands, except per share data)
 
 Year Ended 
 December 31, 
 2019 2018
Income Statement:        
Total interest income$240,787  $229,165 
Total interest expense70,982  57,101 
Net interest income169,805  172,064 
Provision for loan losses5,101  8,437 
Net interest income after provision for loan losses164,704  163,627 
Noninterest income   
Deposit services26,038  25,082 
Net gain (loss) on sale of securities available for sale756  (1,839)
Gain on sale of loans509  692 
Trust fees6,269  6,832 
Bank owned life insurance2,307  2,923 
Brokerage services2,080  1,987 
Other4,409  5,096 
Total noninterest income42,368  40,773 
Noninterest expense   
Salaries and employee benefits73,731  70,643 
Net occupancy13,128  13,814 
Acquisition expense  2,413 
Advertising, travel & entertainment2,964  2,894 
ATM expense894  1,090 
Professional fees4,717  4,035 
Software and data processing4,537  3,996 
Communications1,941  1,847 
FDIC insurance859  1,871 
Amortization of intangibles4,418  5,213 
Other12,108  12,283 
Total noninterest expense119,297  120,099 
Income before income tax expense87,775  84,301 
Income tax expense13,221  10,163 
Net income$74,554  $74,138 
    
Common Share Data:   
Weighted-average basic shares outstanding33,747  34,951 
Weighted-average diluted shares outstanding33,895  35,116 
Common shares outstanding end of period33,823  33,725 
Earnings per common share   
Basic$2.21  $2.12 
Diluted2.20  2.11 
Book value per common share23.79  21.68 
Tangible book value per common share (1)17.45  15.19 
Cash dividends paid per common share1.26  1.20 
    
Selected Performance Ratios:   
Return on average assets1.17% 1.19%
Return on average shareholders’ equity9.53  9.87 
Return on average tangible common equity (1)13.80  14.79 
Average yield on earning assets (FTE) (1)4.28  4.18 
Average rate on interest bearing liabilities1.57  1.30 
Net interest spread (FTE) (1)2.71  2.88 
Net interest margin (FTE) (1)3.06  3.18 
Average earning assets to average interest bearing liabilities128.25  129.89 
Noninterest expense to average total assets1.86  1.93 
Efficiency ratio (FTE) (1)52.36  49.98 
 
(1)  Refer to “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)
 
 Year Ended
 December 31,
 2019 2018
Nonperforming Assets: $17,449  $42,906 
Nonaccrual loans (1)4,963   35,770 
Accruing loans past due more than 90 days (1)    
Restructured loans (2)12,014   5,930 
Other real estate owned472   1,206 
Repossessed assets    
     
Asset Quality Ratios:    
Nonaccruing loans to total loans0.14%  1.08%
Allowance for loan losses to nonaccruing loans499.64   75.54 
Allowance for loan losses to nonperforming assets142.11   62.97 
Allowance for loan losses to total loans0.69   0.82 
Nonperforming assets to total assets0.26   0.70 
Net charge-offs (recoveries) to average loans0.21   0.07 
     
Capital Ratios:    
Shareholders’ equity to total assets11.92   11.94 
Common equity tier 1 capital14.07   14.77 
Tier 1 risk-based capital15.46   16.29 
Total risk-based capital18.43   19.59 
Tier 1 leverage capital10.18   10.64 
       
Period end tangible equity to period end tangible assets (3)9.03   8.68 
Average shareholders’ equity to average total assets12.23   12.06 
 
(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 $3.1 million in PCI loans restructured as of December 31, 2019 and December 31, 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 
 December 31, 2019 September 30, 2019 
 Average
Balance
 Interest Average
Yield/Rate
 Average
Balance
 Interest Average
Yield/Rate 
ASSETS           
Loans (1)$3,540,274  $43,166  4.84% $3,477,187  $43,780  5.00%
Loans held for sale1,114  9  3.21% 2,497  26  4.13%
Securities:           
Taxable investment securities (2)10,083  86  3.38% 3,000  26  3.44%
Tax-exempt investment securities (2)699,868  6,431  3.65% 555,835  5,328  3.80%
Mortgage-backed and related securities (2)1,674,503  12,197  2.89% 1,660,331  12,569  3.00%
Total securities2,384,454  18,714  3.11% 2,219,166  17,923  3.20%
Federal Home Loan Bank stock, at cost, and equity investments59,743  437  2.90% 57,108  422  2.93%
Interest earning deposits44,039  247  2.23% 26,746  206  3.06%
Federal funds sold           
Total earning assets6,029,624  62,573  4.12% 5,782,704  62,357  4.28%
Cash and due from banks72,018      73,815     
Accrued interest and other assets574,124      570,657     
Less: Allowance for loan losses(25,618)     (24,938)    
Total assets$6,650,148      $6,402,238     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$372,798  262  0.28% $367,615  270  0.29%
Certificates of deposits1,204,392  6,172  2.03% 1,118,410  6,011  2.13%
Interest bearing demand accounts1,936,969  4,067  0.83% 1,966,764  5,085  1.03%
Total interest bearing deposits3,514,159  10,501  1.19% 3,452,789  11,366  1.31%
Federal Home Loan Bank borrowings1,019,844  4,716  1.83% 881,088  4,647  2.09%
Subordinated notes, net of unamortized debt issuance costs98,554  1,426  5.74% 98,511  1,425  5.74%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,250  643  4.23% 60,248  685  4.51%
Other borrowings17,874  71  1.58% 13,401  59  1.75%
Total interest bearing liabilities4,710,681  17,357  1.46% 4,506,037  18,182  1.60%
Noninterest bearing deposits1,049,211      1,020,325     
Accrued expenses and other liabilities73,408      72,923     
Total liabilities5,833,300      5,599,285     
Shareholders’ equity816,848      802,953     
Total liabilities and shareholders’ equity$6,650,148      $6,402,238     
Net interest income (FTE)  $45,216      $44,175   
Net interest margin (FTE)    2.98%     3.03%
Net interest spread (FTE)    2.66%     2.68%
 
(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, 2019 and September 30, 2019, loans totaling $5.0 million and $17.1 million, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.


Southside Bancshares, Inc.
Average Balances and Average Yields and Rates (Annualized) (Unaudited)
(Dollars in thousands)
  
 Three Months Ended 
 June 30, 2019 March 31, 2019 
  Average Balance  Interest  Average Yield/Rate  Average Balance  Interest  Average Yield/Rate 
ASSETS                     
Loans (1)$3,387,323  $43,559  5.16% $3,296,665  $42,210  5.19%
Loans held for sale1,965  21  4.29% 611  7  4.65%
Securities:           
Taxable investment securities (2)3,000  27  3.61% 3,000  28  3.79%
Tax-exempt investment securities (2)459,996  4,513  3.94% 659,187  5,732  3.53%
Mortgage-backed and related securities (2)1,680,109  13,246  3.16% 1,647,564  12,474  3.07%
Total securities2,143,105  17,786  3.33% 2,309,751  18,234  3.20%
Federal Home Loan Bank stock, at cost, and equity investments52,311  440  3.37% 53,764  355  2.68%
Interest earning deposits66,017  411  2.50% 64,690  386  2.42%
Federal funds sold3,365  39  4.65% 7,635  47  2.50%
Total earning assets5,654,086  62,256  4.42% 5,733,116  61,239  4.33%
Cash and due from banks78,757      83,147     
Accrued interest and other assets534,835      513,738     
Less: Allowance for loan losses(24,838)     (27,060)    
Total assets$6,242,840      $6,302,941     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$365,205  262  0.29% $360,664  258  0.29%
Certificates of deposit1,119,464  5,861  2.10% 1,154,203  5,697  2.00%
Interest bearing demand accounts1,969,593  5,334  1.09% 1,982,891  5,286  1.08%
Total interest bearing deposits3,454,262  11,457  1.33% 3,497,758  11,241  1.30%
Federal Home Loan Bank borrowings755,748  3,899  2.07% 816,389  4,457  2.21%
Subordinated notes, net of unamortized debt issuance costs98,469  1,410  5.74% 98,428  1,400  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,247  718  4.78% 60,246  729  4.91%
Other borrowings14,530  57  1.57% 16,788  75  1.81%
Total interest bearing liabilities4,383,256  17,541  1.61% 4,489,609  17,902  1.62%
Noninterest bearing deposits1,014,746      986,343     
Accrued expenses and other liabilities73,494      89,768     
Total liabilities5,471,496      5,565,720     
Shareholders’ equity771,344      737,221     
Total liabilities and shareholders’ equity$6,242,840      $6,302,941     
Net interest income (FTE)  $44,715      $43,337   
Net interest margin (FTE)    3.17%     3.07%
Net interest spread (FTE)    2.81%     2.71%
 
(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, 2019 and March 31, 2019, loans totaling $16.4 million and $17.7 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 
 December 31, 2018 
  Average Balance  Interest  Average Yield/Rate
ASSETS     
Loans (1)$3,289,840  $41,320  4.98%
Loans held for sale633  8  5.01%
Securities:     
Taxable investment securities (2)13,066  103  3.13%
Tax-exempt investment securities (2)722,162  7,828  4.30%
Mortgage-backed and related securities (2)1,434,982  10,394  2.87%
Total securities2,170,210  18,325  3.35%
Federal Home Loan Bank stock, at cost, and equity investments44,304  393  3.52%
Interest earning deposits36,098  411  4.52%
Federal funds sold16,967  97  2.27%
Total earning assets5,558,052  60,554  4.32%
Cash and due from banks79,544     
Accrued interest and other assets452,257     
Less: Allowance for loan losses(26,231)    
Total assets$6,063,622     
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Savings accounts$361,407  257  0.28%
Certificates of deposit1,123,101  5,170  1.83%
Interest bearing demand accounts1,968,786  4,908  0.99%
Total interest bearing deposits3,453,294  10,335  1.19%
Federal Home Loan Bank borrowings612,134  3,066  1.99%
Subordinated notes, net of unamortized debt issuance costs98,385  1,431  5.77%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,245  699  4.60%
Other borrowings16,405  81  1.96%
Total interest bearing liabilities4,240,463  15,612  1.46%
Noninterest bearing deposits1,034,556     
Accrued expenses and other liabilities47,234     
Total liabilities5,322,253     
Shareholders’ equity741,369     
Total liabilities and shareholders’ equity$6,063,622     
Net interest income (FTE)  $44,942   
Net interest margin (FTE)    3.21%
Net interest spread (FTE)    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 December 31, 2018, loans totaling $35.8 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 (Unaudited)
(Dollars in thousands)
 
 Year Ended
 December 31, 2019 December 31, 2018
 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate 
ASSETS           
Loans (1)$3,426,171  $172,715  5.04% $3,290,651  $160,982  4.89%
Loans held for sale1,551  63  4.06% 1,451  63  4.34%
Securities:           
Taxable investment securities (2)4,785  167  3.49% 15,790  417  2.64%
Tax-exempt investment securities (2)593,729  22,004  3.71% 781,127  31,964  4.09%
Mortgage-backed and related securities (2)1,665,686  50,486  3.03% 1,462,055  41,584  2.84%
Total securities2,264,200  72,657  3.21% 2,258,972  73,965  3.27%
Federal Home Loan Bank stock, at cost, and equity investments55,752  1,654  2.97% 54,998  1,595  2.90%
Interest earning deposits50,252  1,250  2.49% 78,266  1,624  2.07%
Federal funds sold2,722  86  3.16% 15,647  294  1.88%
Total earning assets5,800,648  248,425  4.28% 5,699,985  238,523  4.18%
Cash and due from banks76,895      77,946     
Accrued interest and other assets547,241      473,639     
Less: Allowance for loan losses(25,608)     (24,378)    
Total assets$6,399,176      $6,227,192     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Savings accounts$366,606  1,052  0.29% $359,509  907  0.25%
Certificates of deposit1,149,171  23,741  2.07% 1,160,423  18,112  1.56%
Interest bearing demand accounts1,963,936  19,772  1.01% 1,978,140  16,845  0.85%
Total interest bearing deposits3,479,713  44,565  1.28% 3,498,072  35,864  1.03%
Federal Home Loan Bank borrowings868,859  17,719  2.04% 720,785  12,813  1.78%
Subordinated notes, net of unamortized debt issuance costs98,491  5,661  5.75% 98,327  5,659  5.76%
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,248  2,775  4.61% 60,243  2,610  4.33%
Other borrowings15,645  262  1.67% 10,880  155  1.42%
Total interest bearing liabilities4,522,956  70,982  1.57% 4,388,307  57,101  1.30%
Noninterest bearing deposits1,017,836      1,040,447     
Accrued expenses and other liabilities76,017      47,176     
Total liabilities5,616,809      5,475,930     
Shareholders’ equity782,367      751,262     
Total liabilities and shareholders’ equity$6,399,176      $6,227,192     
Net interest income (FTE)  $177,443      $181,422   
Net interest margin (FTE)    3.06%     3.18%
Net interest spread (FTE)    2.71%     2.88%
 
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
 
Note:  As of December 31, 2019 and 2018, loans totaling $5.0 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.

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 Year Ended 
  2019 2018 December 31, 
  Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2019 2018
Reconciliation of return on average common equity to return on average tangible common equity:                             
Net income $17,335  $19,792  $18,610  $18,817  $17,381  $74,554  $74,138 
After-tax amortization expense 814  853  892  931  970  3,490  4,118 
Adjusted net income available to common shareholders $18,149  $20,645  $19,502  $19,748  $18,351  $78,044  $78,256 
                             
Average shareholders' equity $816,848  $802,953  $771,344  $737,221  $741,369  $782,367  $751,262 
Less: Average intangibles for the period (215,101) (216,169) (217,266) (218,438) (219,645) (216,733) (222,325)
Average tangible shareholders' equity $601,747  $586,784  $554,078  $518,783  $521,724  $565,634  $528,937 
                      
Return on average tangible common equity 11.97% 13.96% 14.12% 15.44% 13.95% 13.80% 14.79%
               
Reconciliation of book value per share to tangible book value per share:              
Common equity at end of period $804,580  $810,453  $787,765  $758,033  $731,291  $804,580  $731,291 
Less: Intangible assets at end of period (214,477) (215,507) (216,587) (217,716) (218,895) (214,477) (218,895)
Tangible common shareholders' equity at end of period $590,103  $594,946  $571,178  $540,317  $512,396  $590,103  $512,396 
                             
Total assets at end of period $6,748,913  $6,542,075  $6,372,870  $6,217,196  $6,123,494  $6,748,913  $6,123,494 
Less: Intangible assets at end of period (214,477) (215,507) (216,587) (217,716) (218,895) (214,477) (218,895)
Tangible assets at end of period $6,534,436  $6,326,568  $6,156,283  $5,999,480  $5,904,599  $6,534,436  $5,904,599 
                      
Period end tangible equity to period end tangible assets 9.03% 9.40% 9.28% 9.01% 8.68% 9.03% 8.68%
                      
Common shares outstanding end of period 33,823  33,795  33,749  33,718  33,725  33,823  33,725 
Tangible book value per common share $17.45  $17.60  $16.92  $16.02  $15.19  $17.45  $15.19 
               
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) $43,176  $42,373  $43,131  $41,125  $42,410  $169,805  $172,064 
Tax equivalent adjustments:              
Loans 653  641  598  598  599  2,490  2,354 
Tax-exempt investment securities 1,387  1,161  986  1,614  1,933  5,148  7,004 
Net interest income (FTE) (1) 45,216  44,175  44,715  43,337  44,942  177,443  181,422 
Noninterest income 10,465  11,111  11,254  9,538  10,134  42,368  40,773 
Nonrecurring income (2) (42) (42) (557) 171  (66) (470) 1,198 
Total revenue $55,639  $55,244  $55,412  $53,046  $55,010  $219,341  $223,393 
               
Noninterest expense $30,944  $29,026  $29,700  $29,627  $30,196  $119,297  $120,099 
Pre-tax amortization expense (1,030) (1,080) (1,129) (1,179) (1,228) (4,418) (5,213)
Nonrecurring expense (3) 56  (33) (67) 18  (264) (26) (3,236)
Adjusted noninterest expense $29,970  $27,913  $28,504  $28,466  $28,704  $114,853  $111,650 
               
Efficiency ratio 55.92% 52.23% 52.95% 56.00% 54.70% 54.25% 52.16%
Efficiency ratio (FTE) (1) 53.87% 50.53% 51.44% 53.66% 52.18% 52.36% 49.98%
               
Average earning assets $6,029,624  $5,782,704  $5,654,086  $5,733,116  $5,558,052  $5,800,648  $5,699,985 
               
Net interest margin 2.84% 2.91% 3.06% 2.91% 3.03% 2.93% 3.02%
Net interest margin (FTE) (1) 2.98% 3.03% 3.17% 3.07% 3.21% 3.06% 3.18%
               
Net interest spread 2.52% 2.55% 2.69% 2.56% 2.68% 2.58% 2.72%
Net interest spread (FTE) (1) 2.66% 2.68% 2.81% 2.71% 2.86% 2.71% 2.88%
 
(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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