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CST: 23/10/2019 12:53:53   

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

180 Days ago

  • First quarter earnings per diluted common share increased 21.7% to $0.56 compared with first quarter 2018

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

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

  • First quarter annualized return on average assets of 1.21%

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

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

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

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

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

Operating Results for the Three Months Ended March 31, 2019

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

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

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

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

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

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

Balance Sheet Data

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

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

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

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

Asset Quality

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

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

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

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

Dividend

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

Conference Call

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

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

Non-GAAP Financial Measures

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

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

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

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

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

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

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.22 billion in assets as of March 31, 2019, that owns 100% of Southside Bank.  Southside Bank currently has 59 branches in Texas and operates a network of 81 ATMs/ITMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/about/investor-relations.  Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data.  To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website.  Questions or comments may be directed to Lindsey Bibby at (903) 630-7965, or lindsey.bibby@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this document and in other written material, press releases and oral statements issued by or on behalf of the Company may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date.  These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “likely,” “intend,” “probability,” “risk,” “target,” “objective,” “plans,” “potential,” and similar expressions.  Forward-looking statements are statements with respect to the Company’s beliefs, plans, expectations, objectives, goals, anticipations, assumptions and estimates about the Company's future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements.  For example, discussions about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, the Company's ability to sell nonperforming assets, expense reductions, planned operational efficiencies, earnings, successful integration of completed acquisitions and certain market risk disclosures, including the impact of interest rates, tax reform and other economic factors, are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, under “Part I - Item 1. Forward Looking Information” and "Part I - Item 1A. Risk Factors" and in the Company’s other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

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

  As of
  2019   2018
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
ASSETS                  
Cash and due from banks $ 81,981     $ 87,375     $ 85,103     $ 78,534     $ 65,480  
Interest earning deposits 184,612     23,884     70,685     138,685     183,241  
Federal funds sold 3,350     9,460     18,284     14,850     14,090  
Securities available for sale, at estimated fair value 1,876,255     1,989,436     1,939,277     2,037,994     2,062,539  
Securities held to maturity, at carrying value 147,431     162,931     163,365     164,276     164,847  
Total securities 2,023,686     2,152,367     2,102,642     2,202,270     2,227,386  
Federal Home Loan Bank stock, at cost 35,269     32,583     32,291     42,994     42,676  
Loans held for sale 384     601     954     4,566     2,003  
Loans 3,305,110     3,312,799     3,274,524     3,270,883     3,309,627  
Less: Allowance for loan losses (24,155 )   (27,019 )   (26,092 )   (25,072 )   (24,220 )
Net loans 3,280,955     3,285,780     3,248,432     3,245,811     3,285,407  
Premises & equipment, net 138,290     135,972     133,939     132,578     131,625  
Goodwill 201,116     201,116     201,116     201,246     201,246  
Other intangible assets, net 16,600     17,779     19,009     20,287     21,615  
Bank owned life insurance 98,704     98,160     97,611     97,059     100,963  
Other assets 152,249     78,417     95,288     71,293     97,465  
Total assets $ 6,217,196     $ 6,123,494     $ 6,105,354     $ 6,250,173     $ 6,373,197  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Noninterest bearing deposits $ 1,038,116     $ 994,680     $ 1,033,572     $ 1,038,907     $ 1,055,423  
Interest bearing deposits 3,529,777     3,430,350     3,519,940     3,469,834     3,586,474  
Total deposits 4,567,893     4,425,030     4,553,512     4,508,741     4,641,897  
Other borrowings 628,498     755,875     570,242     784,754     779,990  
Subordinated notes, net of unamortized debt issuance costs 98,448     98,407     98,366     98,326     98,286  
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,247     60,246     60,244     60,243     60,242  
Other liabilities 104,077     52,645     70,484     46,299     46,386  
Total liabilities 5,459,163     5,392,203     5,352,848     5,498,363     5,626,801  
Shareholders' equity 758,033     731,291     752,506     751,810     746,396  
Total liabilities and shareholders' equity $ 6,217,196     $ 6,123,494     $ 6,105,354     $ 6,250,173     $ 6,373,197  

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

  At or For the Three Months Ended
  2019   2018
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
Income Statement:                  
Total interest income $ 59,027     $ 58,022     $ 57,152     $ 56,797     $ 57,194  
Total interest expense 17,902     15,612     14,742     13,686     13,061  
Net interest income 41,125     42,410     42,410     43,111     44,133  
Provision for loan losses (918 )   2,446     975     1,281     3,735  
Net interest income after provision for loan losses 42,043     39,964     41,435     41,830     40,398  
Noninterest income                  
Deposit services 5,986     6,325     6,317     6,261     6,179  
Net gain (loss) on sale of securities available for sale 256     61     (741 )   (332 )   (827 )
Gain on sale of loans 93     101     303     173     115  
Trust income 1,541     1,573     1,568     1,931     1,760  
Bank owned life insurance income 544     554     552     1,185     632  
Brokerage services 517     499     532     506     450  
Other 601     1,021     1,491     1,283     1,301  
Total noninterest income 9,538     10,134     10,022     11,007     9,610  
Noninterest expense                  
Salaries and employee benefits 18,046     17,823     17,628     16,633     18,559  
Net occupancy expense 3,175     3,475     3,396     3,360     3,583  
Acquisition expense     118     437     1,026     832  
Advertising, travel & entertainment 847     786     648     775     685  
ATM expense 180     250     251     243     346  
Professional fees 1,314     1,189     824     952     1,070  
Software and data processing expense 1,076     1,057     977     939     1,023  
Telephone and communications 487     477     354     478     538  
FDIC insurance 422     455     435     484     497  
Amortization expense on intangibles 1,179     1,228     1,279     1,328     1,378  
Other 2,901     3,338     2,733     3,056     3,156  
Total noninterest expense 29,627     30,196     28,962     29,274     31,667  
Income before income tax expense 21,954     19,902     22,495     23,563     18,341  
Income tax expense 3,137     2,521     2,192     3,360     2,090  
Net income $ 18,817     $ 17,381     $ 20,303     $ 20,203     $ 16,251  
                   
Common share data:      
Weighted-average basic shares outstanding 33,697     34,611     35,114     35,062     35,022  
Weighted-average diluted shares outstanding 33,846     34,748     35,288     35,233     35,200  
Common shares outstanding end of period 33,718     33,725     35,160     35,084     35,053  
Net income per common share                  
Basic $ 0.56     $ 0.50     $ 0.58     $ 0.58     $ 0.46  
Diluted 0.56     0.50     0.58     0.57     0.46  
Book value per common share 22.48     21.68     21.40     21.43     21.29  
Tangible book value per common share (1) 16.02     15.19     15.14     15.11     14.94  
Cash dividends paid per common share 0.30     0.32     0.30     0.30     0.28  
                   
Selected Performance Ratios:                  
Return on average assets 1.21 %   1.14 %   1.30 %   1.30 %   1.02 %
Return on average shareholders’ equity 10.35     9.30     10.61     10.79     8.75  
Return on average tangible common equity (1) 15.44     13.95     15.70     16.13     13.28  
Average yield on earning assets (FTE) (1) 4.33     4.32     4.18     4.15     4.09  
Average rate on interest bearing liabilities 1.62     1.46     1.36     1.25     1.14  
Net interest spread (FTE) (1) 2.71     2.86     2.82     2.90     2.95  
Net interest margin (FTE) (1) 3.07     3.21     3.14     3.19     3.19  
Average earning assets to average interest bearing liabilities 127.70     131.07     131.12     130.22     127.29  
Noninterest expense to average total assets 1.91     1.98     1.86     1.89     1.99  
Efficiency ratio (FTE) (1) 53.66     52.18     48.91     47.56     51.28  
  1. Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

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

  Three Months Ended
  2019   2018
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
Nonperforming assets: $ 38,111     $ 42,906     $ 39,638     $ 42,423     $ 42,444  
Nonaccrual loans (1) 17,691     35,770     32,526     35,351     34,545  
Accruing loans past due more than 90 days (1)(2) 7,927             7     4  
Restructured loans (3) 11,490     5,930     5,699     5,860     5,839  
Other real estate owned 978     1,206     1,413     1,137     2,014  
Repossessed assets 25             68     42  
                   
Asset Quality Ratios:                  
Nonaccruing loans to total loans 0.54 %   1.08 %   0.99 %   1.08 %   1.04 %
Allowance for loan losses to nonaccruing loans 136.54     75.54     80.22     70.92     70.11  
Allowance for loan losses to nonperforming assets 63.38     62.97     65.83     59.10     57.06  
Allowance for loan losses to total loans 0.73     0.82     0.80     0.77     0.73  
Nonperforming assets to total assets 0.61     0.70     0.65     0.68     0.67  
Net charge-offs (recoveries) to average loans 0.24     0.18     (0.01 )   0.05     0.04  
                   
Capital Ratios:                  
Shareholders’ equity to total assets 12.19     11.94     12.33     12.03     11.71  
Common equity tier 1 capital 14.38     14.77     15.90     15.49     14.76  
Tier 1 risk-based capital 15.88     16.29     17.43     17.02     16.26  
Total risk-based capital 19.06     19.59     20.75     20.31     19.45  
Tier 1 leverage capital 10.18     10.64     11.06     10.76     10.17  
Period end tangible equity to period end tangible assets (4) 9.01     8.68     9.05     8.80     8.51  
Average shareholders’ equity to average total assets 11.70     12.23     12.28     12.06     11.69  

(1)   Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.
(2)   The loan relationship at March 31, 2019 paid off in full on April 15, 2019.
(3)   Includes $0.7 million, $3.1 million, $3.2 million, $2.9 million and $2.9 million in PCI loans restructured as of March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018, respectively.
(4)   Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Loan Portfolio Composition

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

  Three Months Ended
  2019   2018
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
Real Estate Loans:                  
Construction $ 603,411     $ 507,732     $ 484,254     $ 487,286     $ 474,791  
1-4 Family Residential 786,198     794,499     791,274     791,359     797,088  
Commercial 1,104,378     1,194,118     1,218,714     1,245,936     1,285,591  
Commercial Loans 367,995     356,649     322,873     282,723     281,901  
Municipal Loans 343,026     353,370     344,792     345,595     342,404  
Loans to Individuals 100,102     106,431     112,617     117,984     127,852  
Total Loans $ 3,305,110     $ 3,312,799     $ 3,274,524     $ 3,270,883     $ 3,309,627  


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

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

  Three Months Ended
  March 31, 2019   December 31, 2018
  Avg Balance   Interest   Avg
Yield/
Rate
  Avg Balance   Interest   Avg
Yield/
Rate
ASSETS                      
Loans (1) $ 3,296,665     $ 42,210     5.19 %   $ 3,289,840     $ 41,320     4.98 %
Loans held for sale 611     7     4.65 %   633     8     5.01 %
Securities:                      
Investment securities (taxable) (2) 3,000     28     3.79 %   13,066     103     3.13 %
Investment securities (tax-exempt) (2) 659,187     5,732     3.53 %   722,162     7,828     4.30 %
Mortgage-backed and related securities (2) 1,647,564     12,474     3.07 %   1,434,982     10,394     2.87 %
Total securities 2,309,751     18,234     3.20 %   2,170,210     18,325     3.35 %
FHLB stock, at cost, and equity investments 53,764     355     2.68 %   44,304     393     3.52 %
Interest earning deposits 64,690     386     2.42 %   36,098     411     4.52 %
Federal funds sold 7,635     47     2.50 %   16,967     97     2.27 %
Total earning assets 5,733,116     61,239     4.33 %   5,558,052     60,554     4.32 %
Cash and due from banks 83,147             79,544          
Accrued interest and other assets 513,738             452,257          
Less: Allowance for loan losses (27,060 )           (26,231 )        
Total assets $ 6,302,941             $ 6,063,622          
LIABILITIES AND SHAREHOLDERS’ EQUITY                      
Savings deposits $ 360,664     258     0.29 %   $ 361,407     257     0.28 %
Time deposits 1,154,203     5,697     2.00 %   1,123,101     5,170     1.83 %
Interest bearing demand deposits 1,982,891     5,286     1.08 %   1,968,786     4,908     0.99 %
Total interest bearing deposits 3,497,758     11,241     1.30 %   3,453,294     10,335     1.19 %
FHLB borrowings 816,389     4,457     2.21 %   612,134     3,066     1.99 %
Subordinated notes, net of unamortized debt issuance costs 98,428     1,400     5.77 %   98,385     1,431     5.77 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,246     729     4.91 %   60,245     699     4.60 %
Other borrowings 16,788     75     1.81 %   16,405     81     1.96 %
Total interest bearing liabilities 4,489,609     17,902     1.62 %   4,240,463     15,612     1.46 %
Noninterest bearing deposits 986,343             1,034,556          
Accrued expenses and other liabilities 89,768             47,234          
Total liabilities 5,565,720             5,322,253          
Shareholders’ equity 737,221             741,369          
Total liabilities and shareholders’ equity $ 6,302,941             $ 6,063,622          
Net interest income (FTE)     $ 43,337             $ 44,942      
Net interest margin (FTE)         3.07 %           3.21 %
Net interest spread (FTE)         2.71 %           2.86 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note:  As of March 31, 2019 and December 31, 2018, loans totaling $17.7 million and $35.8 million, respectively, were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.


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

  Three Months Ended
  September 30, 2018   June 30, 2018
  Avg Balance   Interest   Avg
Yield/
Rate
  Avg Balance   Interest   Avg
Yield/
Rate
ASSETS                      
Loans (1) $ 3,286,664     $ 40,396     4.88 %   $ 3,285,756     $ 39,865     4.87 %
Loans held for sale 1,841     25     5.39 %   1,794     19     4.25 %
Securities:                      
Investment securities (taxable) (2) 4,285     36     3.33 %   6,891     51     2.97 %
Investment securities (tax-exempt) (2) 795,397     8,132     4.06 %   802,611     8,004     4.00 %
Mortgage-backed and related securities (2) 1,418,114     10,086     2.82 %   1,439,810     10,210     2.84 %
Total securities 2,217,796     18,254     3.27 %   2,249,312     18,265     3.26 %
FHLB stock, at cost, and equity investments 54,216     377     2.76 %   54,729     411     3.01 %
Interest earning deposits 77,977     414     2.11 %   92,291     400     1.74 %
Federal funds sold 16,072     77     1.90 %   16,251     71     1.75 %
Total earning assets 5,654,566     59,543     4.18 %   5,700,133     59,031     4.15 %
Cash and due from banks 78,623             75,560          
Accrued interest and other assets 477,737             473,142          
Less: Allowance for loan losses (25,646 )           (24,558 )        
Total assets $ 6,185,280             $ 6,224,277          
LIABILITIES AND SHAREHOLDERS’ EQUITY                      
Savings deposits $ 362,405     258     0.28 %   $ 360,340     208     0.23 %
Time deposits 1,173,672     4,744     1.60 %   1,175,230     4,303     1.47 %
Interest bearing demand deposits 1,953,904     4,495     0.91 %   1,981,427     4,070     0.82 %
Total interest bearing deposits 3,489,981     9,497     1.08 %   3,516,997     8,581     0.98 %
FHLB borrowings 654,153     3,108     1.88 %   692,386     3,007     1.74 %
Subordinated notes, net of unamortized debt issuance costs 98,346     1,423     5.74 %   98,306     1,407     5.74 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,244     684     4.50 %   60,243     658     4.38 %
Other borrowings 9,651     30     1.23 %   9,283     33     1.43 %
Total interest bearing liabilities 4,312,375     14,742     1.36 %   4,377,215     13,686     1.25 %
Noninterest bearing deposits 1,064,797             1,045,298          
Accrued expenses and other liabilities 48,699             50,843          
Total liabilities 5,425,871             5,473,356          
Shareholders’ equity 759,409             750,921          
Total liabilities and shareholders’ equity $ 6,185,280             $ 6,224,277          
Net interest income (FTE)     $ 44,801             $ 45,345      
Net interest margin (FTE)         3.14 %           3.19 %
Net interest spread (FTE)         2.82 %           2.90 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

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

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

  Three Months Ended
  March 31, 2018
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS          
Loans (1) $ 3,300,506     $ 39,401     4.84 %
Loans held for sale 1,543     11     2.89 %
Securities:          
Investment securities (taxable) (2) 39,332     227     2.34 %
Investment securities (tax-exempt) (2) 805,091     8,000     4.03 %
Mortgage-backed and related securities (2) 1,557,140     10,894     2.84 %
Total securities 2,401,563     19,121     3.23 %
FHLB stock, at cost, and equity investments 67,000     414     2.51 %
Interest earning deposits 107,488     399     1.51 %
Federal funds sold 13,252     49     1.50 %
Total earning assets 5,891,352     59,395     4.09 %
Cash and due from banks 78,031          
Accrued interest and other assets 493,974          
Less: Allowance for loan losses (21,005 )        
Total assets $ 6,442,352          
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Savings deposits $ 353,770     184     0.21 %
Time deposits 1,170,024     3,895     1.35 %
Interest bearing demand deposits 2,009,154     3,372     0.68 %
Total interest bearing deposits 3,532,948     7,451     0.86 %
FHLB borrowings 928,677     3,632     1.59 %
Subordinated notes, net of unamortized debt issuance costs 98,267     1,398     5.77 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,241     569     3.83 %
Other borrowings 8,103     11     0.55 %
Total interest bearing liabilities 4,628,236     13,061     1.14 %
Noninterest bearing deposits 1,016,707          
Accrued expenses and other liabilities 44,015          
Total liabilities 5,688,958          
Shareholders’ equity 753,394          
Total liabilities and shareholders’ equity $ 6,442,352          
Net interest income (FTE)     $ 46,334      
Net interest margin (FTE)         3.19 %
Net interest spread (FTE)         2.95 %
  1. Interest on loans includes net fees on loans that are not material in amount.
  2. For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note:  As of March 31, 2018, loans totaling $34.5 million were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

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

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

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

(1)   These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(2)   These adjustments may include net gain and loss on sale of securities available for sale, loss on fair value hedge, other-than-temporary impairment charges and additional bank owned life insurance income realized as a result of the death benefits for a retired covered officer, in the periods where applicable.
(3)   These adjustments may include acquisition expenses, foreclosure expenses and branch closure expenses, in the periods where applicable.

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