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Southside Bancshares, Inc. Announces Financial Results for the Three Months and Year Ended December 31, 2014

TYLER, Texas, March 2, 2015 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (Nasdaq:SBSI) today reported its financial results for the three months and year ended December 31, 2014.

Southside reported a net loss of $3.9 million for the three months ended December 31, 2014, a decrease of $16.1 million, or 132.4%, when compared to net income of $12.2 million for the same period in 2013. The net loss for the fourth quarter is a result of recording approximately $14.8 million of merger-related expenses in connection with the acquisition of OmniAmerican Bancorp, Inc. ("Omni") and a loss of approximately $4.5 million due to the completion of the sale of subprime automobile loans purchased by SFG Finance, LLC ("SFG"). The merger-related expenses primarily consisted of stock compensation expense, increased professional fees and expenses to cancel software contracts. Net income for the year ended December 31, 2014 decreased $20.4 million, or 49.4%, to $20.8 million when compared to $41.2 million for the same period in 2013. The decrease in net income during the year ended December 31, 2014 is primarily attributable to merger expenses related to the Omni acquisition, the loss related to the sale of the SFG loans and repossessed assets and a decrease in the gain on the sale of securities available for sale of $5.6 million.

Diluted (losses) earnings per common share were $(0.20) and $0.65 for the three months ended December 31, 2014 and 2013, respectively, a decrease of $0.85, or 130.8%. For the year ended December 31, 2014, diluted earnings per common share decreased $1.10, or 50.2% to $1.09 when compared to $2.19 for the same period in 2013.

The return on average shareholders' equity for the year ended December 31, 2014 was 7.24%, compared to 16.50% for the same period in 2013. The return on average assets was 0.60% for the year ended December 31, 2014 when compared to 1.22% for the same period in 2013.

"During the fourth quarter we completed the acquisition of Omni and the sale of the subprime automobile loans purchased by our wholly-owned subsidiary SFG, including the repossessed assets SFG held," stated Sam Dawson, President and Chief Executive Officer of Southside Bancshares, Inc. "We recorded merger-related expense of approximately $14.8 million during the quarter, comprised primarily of $8.9 million of post combination expense for the acceleration of unvested Omni stock options and restricted stock, $2.7 million of investment banking expenses and $2.6 million of expense to cancel Omni software contracts. In addition, during the fourth quarter we recorded an additional loss from the completion of the sale of the SFG subprime automobile loans and repossessed assets of approximately $4.5 million comprised primarily of $2.4 million due to a reduction in the selling price for the SFG loans, $516,000 of additional impairment, $500,000 for a reserve and approximately $500,000 associated with severance packages."

"With our Omni merger now complete, we look forward to focusing our attention in 2015 on strategically growing our franchise in the greater Fort Worth market area along with our other key markets in the greater Austin area and East Texas. In addition to a focus on integration efforts related to the merger in the first quarter of the year we will concentrate on further organic growth in our commercial loan and commercial real estate loan portfolios. Cost containment efforts as a result of the merger and other bank wide initiatives will also be a major focus area during 2015. Some of our operation areas are being streamlined or further automated to create additional cost efficiencies or to provide enhanced customer service levels."

"We believe the Texas markets we serve continue to offer significant opportunities to grow our franchise despite the decrease in oil prices. Prices for West Texas Intermediate Crude have decreased from over $100 per barrel last summer to approximately $50 per barrel. Historically, Southside and Omni have never been large energy lenders. At December 31, 2014, we had approximately $40 million of energy-related loans representing approximately 1.8% of total loans. In addition, the markets we serve appear to be less directly impacted by the decline in oil prices than other markets in Texas. However, we are aware that the longer oil prices remain at these levels, the greater the likelihood there may be some residual effects in our market areas. On a positive note for Texas consumers, low oil prices translate to lower gasoline prices and Texas is a large state where daily vehicle use is essential and prevalent. As a result, as long as oil prices remain at these levels, Texas consumers will benefit from the resulting reduced gasoline prices."

"We are pleased to report that in January 2015, SBSI was included in the S&P SmallCap 600. We are excited about Southside's prospects and plans for 2015 and believe they will provide an even stronger foundation for our growing franchise in the coming years."

Loans and Deposits

For the year ended December 31, 2014, total loans increased by $829.9 million, or 61.4%, when compared to December 31, 2013. This increase was mainly attributable to the merger with Omni during the fourth quarter 2014. Primarily due to the merger and to a lesser extent loan growth, during the year ended December 31, 2014, 1-4 family real estate loans increased $298.8 million, other real estate loans increased $222.7 million, construction loans increased $118.3 million, loans to individuals increased $100.5 million, commercial loans increased $77.7 million and municipal loans increased $11.9 million.

Nonperforming assets decreased for the year of 2014 by $1.3 million, or 9.8%, to $12.3 million, or 0.26% of total assets, when compared to 0.39% at December 31, 2013.

During the year ended December 31, 2014, the allowance for loan losses decreased $5.6 million, or 29.6%, to $13.3 million, or 0.61% of total loans, when compared to 1.40% at December 31, 2013. The $5.6 million decrease was due to the transfer of the subprime automobile loans to loans held for sale during the third quarter and the subsequent sale in November. The decrease in the allowance as a percentage of total loans was due to the fact there was no allowance for loan losses recorded for the Omni loans since credit was considered in the fair valuing of the loans and the timing of merger, December 17, 2014, in relation to year ended December 31, 2014.

During the year ended December 31, 2014, deposits, net of brokered deposits, increased $873.1 million, or 35.3%, compared to December 31, 2013, due to the merger with Omni.

Net Interest Income for the Three Months

Net interest income decreased $3.3 million, or 11.5%, to $25.4 million for the three months ended December 31, 2014, when compared to $28.7 million for the same period in 2013. The decrease in net interest income was primarily the result of the decrease in investment securities tax-exempt interest income of $2.4 million and a decrease in loan income of $1.5 million which was partially offset by an increase of $498,000 in interest income from mortgage-backed securities, compared to the same period in 2013. For the three months ended December 31, 2014, our net interest spread decreased to 3.29% when compared to 3.87% for the same period in 2013. The net interest margin decreased to 3.42% for the three months ended December 31, 2014 compared to 4.00% for the same period in 2013. The reason for the decrease in the net interest spread and margin was the decrease in the yield on the interest-earning assets which was primarily due to the sale of the higher yielding SFG subprime automobile loans, which more than offset the slight decrease in the yield on the interest-bearing liabilities compared to the same period in 2013.

Net Interest Income for the Year

Due to the merger occurring so late in the year on December 17, 2014, Omni did not contribute significantly for the year or three months ended December 31, 2014. Net interest income increased $5.2 million, or 5.1%, to $106.8 million for the year ended December 31, 2014, when compared to $101.6 million for the same period in 2013. For the year ended December 31, 2014, our net interest spread increased to 3.63% from 3.54% for the same period in 2013. The net interest margin increased to 3.77% for the year ended December 31, 2014, compared to 3.69% for the same period in 2013.

Net Loss for the Three Months

For the three months ended December 31, 2014, we recorded a net loss of $3.9 million, a decrease of $16.1 million or 132.4% when compared to net income of $12.2 million for the same period in 2013. The decrease was primarily the result of an increase in salaries and employee benefits of $9.6 million due primarily to compensation expense related to the Omni acquisition and severance expense related to the sale of SFG loans, a decrease in interest income of $3.4 million of which $1.5 million was primarily due to the sale of SFG loans and $2.4 million was due to the decrease of investment securities tax-exempt interest income, an increase in provision for loan losses of $561,000 due to the write down and transfer of SFG purchased loans to held for sale, and the impairment charge of $516,000 on our investment in SFG, the recording of a reserve of $500,000 due to the sale of the SFG loans, which was partially offset by an increase in net gain on sale of available for sale securities of $1.9 million.

Noninterest expense increased $17.1 million, or 85.7%, for the three months ended December 31, 2014, compared to the same period in 2013, primarily due to increases in salary and employee benefit expense, professional fees and software and data processing expense associated with the Omni merger, which were partially offset by a decrease in advertising, travel and entertainment.

Net Income for the Year

Net income for the year ended December 31, 2014 decreased $20.4 million, or 49.4%, to $20.8 million, when compared to $41.2 million for the same period in 2013. This decrease was due to a decrease in net gain on sale of available for sale securities of $5.6 million, a $6.1 million increase in provision for loan losses primarily from the sale of SFG loans, the impairment charge of $2.8 million on our investment in SFG and merger related expenses related to the acquisition of Omni comprised primarily of an increase in salaries and employee benefits of $8.9 million due to compensation expense resulting from the acceleration of unvested Omni stock options and restricted stock in connection with the Omni stock plans in place, an increase in professional fees related to the merger of $4.2 million and an increase in software and data processing expense of $2.6 million due to cancelling Omni software contracts. These decreases were partially offset by an increase in net interest income of $5.2 million and a decrease in provision for income tax expense of $7.3 million.

Noninterest expense increased $16.0 million, or 19.6%, for the year ended December 31, 2014, compared to the same period in 2013, primarily due to increases in salary and employee benefit expense, professional fees and software and data processing expense associated with the Omni merger, which were partially offset by decreases in advertising, travel and entertainment and FHLB prepayment fees.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $4.8 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 64 banking centers in Texas and operates a network of 70 ATMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/investor. 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 Deborah Wilkinson at (817) 367-4962, or deborah.wilkinson@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, a bank holding company, may be considered to be "forward-looking statements" within the meaning of and subject to the 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, estimates, intentions and 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 growth, earnings and certain market risk disclosures, including the impact of interest rate and other economic uncertainty, 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, 2013 under "Forward-Looking Information" and 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.

At
December 31,
2014
At
December 31,
2013
(dollars in thousands)
(unaudited)
Selected Financial Condition Data (at end of period):
Total assets $4,807,261 $3,445,663
Loans 2,181,133 1,351,273
Allowance for loan losses 13,292 18,877
Loans held for sale 2,899 151
Mortgage-backed securities:
Available for sale, at estimated fair value 1,142,002 840,258
Held to maturity, at carrying value 253,496 275,569
Investment securities:
Available for sale, at estimated fair value 306,706 337,429
Held to maturity, at carrying value 388,823 391,552
Federal Home Loan Bank stock, at cost 39,942 34,065
Deposits 3,374,417 2,527,808
Long-term obligations 660,363 559,660
Shareholders' equity 425,243 259,518
Nonperforming assets 12,277 13,606
Nonaccrual loans (1) 4,096 8,088
Accruing loans past due more than 90 days (1) 4 3
Restructured loans (1) 5,874 3,888
Other real estate owned 1,738 726
Repossessed assets 565 901
Asset Quality Ratios:
Nonaccruing loans to total loans 0.19% 0.60%
Allowance for loan losses to nonaccruing loans 324.51 233.40
Allowance for loan losses to nonperforming assets 108.27 138.74
Allowance for loan losses to total loans 0.61 1.40
Nonperforming assets to total assets 0.26 0.39
Net charge-offs to average loans 1.44 0.82
Capital Ratios:
Shareholders' equity to total assets 8.85 7.53
Average shareholders' equity to average total assets 8.27 7.39
(1) Excludes purchased credit impaired loans measured at fair value at acquisition.

Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented:

At
December 31,
2014
At
December 31,
2013
(in thousands)
(unaudited)
Real Estate Loans:
Construction $243,486 $125,219
1-4 Family Residential 689,288 390,499
Other 485,226 262,536
Commercial Loans 235,356 157,655
Municipal Loans 257,492 245,550
Loans to Individuals 270,285 169,814
Total Loans $2,181,133 $1,351,273
At or For the
Three Months Ended
December 31,
At or For the
Year Ended
December 31,
2014 2013 2014 2013
(dollars in thousands)
(unaudited)
Selected Operating Data:
Total interest income $29,613 $33,015 $123,778 $119,602
Total interest expense 4,259 4,353 16,956 17,968
Net interest income 25,354 28,662 106,822 101,634
Provision for loan losses 3,287 2,726 14,938 8,879
Net interest income after provision for loan losses 22,067 25,936 91,884 92,755
Noninterest income
Deposit services 3,988 3,898 15,280 15,560
Net gain (loss) on sale of securities available for sale 1,170 (732) 2,830 8,472
Impairment of investment (516) (2,755)
Gain on sale of loans 54 80 323 770
Trust income 805 812 3,145 3,024
Bank owned life insurance income 393 2,277 1,334 3,122
Other 1,255 1,161 4,332 4,297
Total noninterest income 7,149 7,496 24,489 35,245
Noninterest expense
Salaries and employee benefits 21,829 12,277 60,821 52,054
Occupancy expense 1,946 1,849 7,259 7,539
Advertising, travel & entertainment 582 746 2,219 2,642
ATM and debit card expense 385 334 1,331 1,328
Professional fees 4,464 850 7,827 2,782
Software and data processing expense 3,099 503 4,629 2,018
Telephone and communications 332 311 1,222 1,529
FDIC insurance 446 450 1,765 1,713
FHLB prepayment fees 539 60 539 1,048
Other 3,457 2,584 10,092 9,060
Total noninterest expense 37,079 19,964 97,704 81,713
(Loss) income before income tax expense (7,863) 13,468 18,669 46,287
(Benefit) provision for income tax expense (3,918) 1,281 (2,164) 5,097
Net (loss) income $(3,945) $12,187 $20,833 $41,190
Common share data:
Weighted-average basic shares outstanding 19,766 18,801 19,072 18,768
Weighted-average diluted shares outstanding 19,766 18,870 19,166 18,808
Net (loss) income per common share
Basic $(0.20) $0.65 $1.09 $2.19
Diluted (0.20) 0.65 1.09 2.19
Book value per common share 17.64 13.79
Cash dividend paid per common share 0.32 0.31 0.96 0.91
At or For the
Three Months Ended
December 31,
At or For the
Year Ended
December 31,
2014 2013 2014 2013
(unaudited) (unaudited)
Selected Performance Ratios:
Return on average assets (1) (0.43)% 1.37% 0.60% 1.22%
Return on average shareholders' equity (1) (4.94) 19.56 7.24 16.50
Average yield on interest earning assets 3.92 4.51 4.29 4.25
Average yield on interest bearing liabilities 0.63 0.64 0.66 0.71
Net interest spread 3.29 3.87 3.63 3.54
Net interest margin 3.42 4.00 3.77 3.69
Average interest earnings assets to average interest bearing liabilities 125.71 124.14 126.26 126.10
Noninterest expense to average total assets 4.04 2.25 2.81 2.42
Efficiency ratio (2) 60.04 47.23 55.42 55.71
(1) The merger expenses recorded during the fourth quarter of $14.8 million related to the Omni merger on December 17, 2014 are the reason for the negative return on average assets and return on average shareholders' equity for the three months ended December 31, 2014.
(2) This excluded merger related expenses.

RESULTS OF OPERATIONS

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities.

AVERAGE BALANCES AND YIELDS
(dollars in thousands)
(unaudited)
Years Ended
December 31, 2014 December 31, 2014
AVG AVG AVG AVG
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2) $1,420,802 $74,450 5.24% $1,296,440 $76,728 5.92%
Loans Held For Sale 11,012 47 0.43% 1,137 38 3.34%
Securities:
Investment Securities (Taxable)(4) 33,168 615 1.85% 47,914 799 1.67%
Investment Securities (Tax-Exempt)(3)(4) 659,219 36,263 5.50% 678,000 37,310 5.50%
Mortgage-backed Securities (4) 1,056,095 28,207 2.67% 1,072,601 20,085 1.87%
Total Securities 1,748,482 65,085 3.72% 1,798,515 58,194 3.24%
FHLB stock and other investments, at cost 28,684 181 0.63% 31,378 182 0.58%
Interest Earning Deposits 54,853 139 0.25% 55,127 143 0.26%
Total Interest Earning Assets 3,263,833 139,902 4.29% 3,182,597 135,285 4.25%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 43,342 44,013
Bank Premises and Equipment 55,680 50,766
Other Assets 133,641 120,725
Less: Allowance for Loan Loss (17,177) (19,007)
Total Assets $3,479,319 $3,379,094
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits $121,453 136 0.11% $108,097 142 0.13%
Time Deposits 610,178 4,287 0.70% 640,608 4,700 0.73%
Interest Bearing Demand Deposits 1,231,711 3,530 0.29% 1,081,475 3,337 0.31%
Total Interest Bearing Deposits 1,963,342 7,953 0.41% 1,830,180 8,179 0.45%
Short-term Interest Bearing Liabilities 64,160 624 0.97% 197,506 1,875 0.95%
Long-term Interest Bearing Liabilities – FHLB Dallas 497,296 6,955 1.40% 435,941 6,465 1.48%
Long-term Debt (5) 60,311 1,424 2.36% 60,311 1,449 2.40%
Total Interest Bearing Liabilities 2,585,109 16,956 0.66% 2,523,938 17,968 0.71%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 576,770 560,762
Other Liabilities 29,672 44,685
Total Liabilities 3,191,551 3,129,385
SHAREHOLDERS' EQUITY 287,768 249,709
Total Liabilities and Shareholders' Equity $3,479,319 $3,379,094
NET INTEREST INCOME $122,946 $117,317
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.77% 3.69%
NET INTEREST SPREAD 3.63% 3.54%
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $3,899 and $3,856 for the years ended December 31, 2014 and 2013, respectively.
(3) Interest income includes taxable-equivalent adjustments of $12,225 and $11,827 for the years ended December 31, 2014 and 2013, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents the issuance of junior subordinated debentures.

Note: As of December 31, 2014 and 2013, loans on nonaccrual status totaled $4,096 and $8,088, respectively. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

AVERAGE BALANCES AND YIELDS
(dollars in thousands)
(unaudited)
Three Months Ended
December 31, 2014 December 31, 2013
AVG AVG AVG AVG
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2) $1,529,467 $17,601 4.57% $1,328,571 $19,197 5.73%
Loans Held For Sale 41,666 35 0.33% 295 3 4.03%
Securities:
Investment Securities (Taxable) (4) 30,867 139 1.79% 29,409 127 1.71%
Investment Securities (Tax-Exempt)(3)(4) 638,849 8,775 5.45% 729,844 12,099 6.58%
Mortgage-backed Securities (4) 1,051,385 6,898 2.60% 1,125,359 6,400 2.26%
Total Securities 1,721,101 15,812 3.64% 1,884,612 18,626 3.92%
FHLB stock and other investments, at cost 28,942 37 0.51% 35,932 47 0.52%
Interest Earning Deposits 69,701 43 0.24% 83,339 50 0.24%
Total Interest Earning Assets 3,390,877 33,528 3.92% 3,332,749 37,923 4.51%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 45,009 42,820
Bank Premises and Equipment 63,598 51,823
Other Assets 154,958 117,969
Less: Allowance for Loan Loss (13,445) (19,275)
Total Assets $3,640,997 $3,526,086
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits $138,724 35 0.10% $109,657 36 0.13%
Time Deposits 625,896 1,043 0.66% 664,615 1,221 0.73%
Interest Bearing Demand Deposits 1,278,924 899 0.28% 1,131,125 840 0.29%
Total Interest Bearing Deposits 2,043,544 1,977 0.38% 1,905,397 2,097 0.44%
Short-term Interest Bearing Liabilities 95,484 271 1.13% 230,109 120 0.21%
Long-term Interest Bearing Liabilities – FHLB Dallas 497,948 1,652 1.32% 488,956 1,775 1.44%
Long-term Debt (5) 60,311 359 2.36% 60,311 361 2.37%
Total Interest Bearing Liabilities 2,697,287 4,259 0.63% 2,684,773 4,353 0.64%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 594,326 555,414
Other Liabilities 32,360 38,727
Total Liabilities 3,323,973 3,278,914
SHAREHOLDERS' EQUITY 317,024 247,172
Total Liabilities and Shareholders' Equity $3,640,997 $3,526,086
NET INTEREST INCOME $29,269 $33,570
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.42% 4.00%
NET INTEREST SPREAD 3.29% 3.87%
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $874 and $970 for the three months ended December 31, 2014 and 2013, respectively.
(3) Interest income includes taxable-equivalent adjustments of $3,041 and $3,938 for the three months ended December 31, 2014 and 2013, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents the issuance of junior subordinated debentures.

Note: As of December 31, 2014 and 2013, loans on nonaccrual status totaled $4,096 and $8,088, respectively. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

CONTACT: Deborah Wilkinson (817) 367-4962 deborah.wilkinson@southside.com

Source:Southside Bancshares, Inc.