Southside Bancshares, Inc. Announces Financial Results for the Three Months and Year Ended December 31, 2017

TYLER, Texas, Feb. 06, 2018 (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, 2017.

Southside reported net income of $10.3 million for the three months ended December 31, 2017, a decrease of $1.2 million, or 10.7%, compared to $11.6 million for the same period in 2016. Southside reported net income of $54.3 million for the year ended December 31, 2017, an increase of $5.0 million, or 10.1%, compared to $49.3 million for the same period in 2016.

Diluted earnings per common share were $0.33 for the three months ended December 31, 2017, a decrease of $0.09, or 21.4%, compared to $0.42 for the three months ended December 31, 2016. For the year ended December 31, 2017, diluted earnings per common share were $1.81, the same as for the year ended 2016.

The return on average shareholders’ equity for the year ended December 31, 2017 was 9.65%, compared to 10.54% for the same period in 2016. The return on average assets was 0.96% for the year ended December 31, 2017, compared to 0.94% for the same period in 2016.

“Continued solid performance and the closing of our Diboll transaction during the fourth quarter provided a nice finish to 2017,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “Earnings per share (diluted) for the fourth quarter were negatively impacted $0.08 due to acquisition cost, net of tax, related to the Diboll transaction. We were also required to recalculate our net deferred tax asset during the fourth quarter to account for the lower corporate tax rates and the reduced future deductions as a result of the Tax Cuts and Jobs Act passed in December 2017. This recalculation resulted in a non-cash tax charge that negatively impacted earnings $0.08 per diluted common share for the fourth quarter. The reduction in corporate tax rates is expected to positively impact earnings in 2018 and in future years.”

“Many of our customers have become more optimistic about their economic future as a result of the reduced regulatory burden and the anticipated benefits from lower tax rates. Loans, excluding acquired loans, increased 4.6% during 2017 while maintaining strong asset quality with nonperforming assets at 0.16% of total assets. The economic conditions in Texas, including our market areas, remain solid with the Austin and DFW markets continuing to perform exceptionally well.”

“The completion of the Diboll transaction, healthy, growing markets and tax rate cuts, all provide us a solid foundation on which to build in 2018. I want to thank all of our customers, shareholders, team members and directors for making Southside the success it is today.”

Loans and Deposits

For the year ended December 31, 2017, total loans increased by $737.8 million, or 28.9%, compared to December 31, 2016, with approximately $621.3 million the result of the consummation of the Diboll merger in the fourth quarter. The net increase in our loans was comprised primarily of increases of $319.2 million of commercial real estate loans, $168.1 million of 1-4 family residential loans, $95.7 million of construction loans, $89.2 million of commercial loans, $47.2 million of municipal loans, and $18.5 million of loans to individuals. Oil and gas industry loans totaled 1.50% of the loan portfolio at December 31, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the year ended December 31, 2017 by $4.6 million, or 30.7%, to $10.5 million, or 0.16% of total assets, compared to $15.1 million, or 0.27% of total assets at December 31, 2016, due to the payoff of several nonaccrual commercial loans during 2017.

During the year ended December 31, 2017, the allowance for loan losses increased by $2.9 million, or 16.0%, to $20.8 million, or 0.63% of total loans, compared to 0.70% of total loans at December 31, 2016. The decrease in the allowance as a percentage of total loans was due to the fact that there was no allowance for loan losses recorded for the Diboll loans since credit quality was considered in the fair valuing of loans and the timing of the completion of the merger on November 30, 2017, in relation to year end.

For the year ended December 31, 2017, deposits, net of brokered deposits, increased $956.2 million, or 27.3%, compared to December 31, 2016, primarily due to approximately $899.3 million of deposits assumed in the Diboll merger.

Net Interest Income for the Three Months Ended December 31, 2017

Net interest income increased $3.7 million, or 10.6%, to $38.3 million for the three months ended December 31, 2017, compared to $34.6 million for the same period in 2016. The increase in net interest income was the result of a $6.4 million increase in interest income primarily from our loan portfolio, partially offset by the increase in interest expense of $2.8 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016. For the three months ended December 31, 2017, our net interest spread increased slightly to 2.91%, compared to 2.90% for the same period in 2016. Our net interest margin increased to 3.12% for the three months ended December 31, 2017, compared to 3.03% for the same period in 2016, due to the increase in net interest income and earning assets partially offset by the increase in average rates paid on interest bearing liabilities. The increase in average rates paid on interest bearing liabilities was primarily due to overall higher interest rates during 2017. The increase in the average yield on earning assets during the three months ended December 31, 2017 was the result of increases in the average yields on most of the earning asset categories partially offset by the decrease in the average yield on tax-exempt investment securities. The net interest spread and margin increased on a linked quarter basis from 2.82% and 3.02%, respectively, for the three months ended September 30, 2017, to 2.91% and 3.12%, respectively, for the three months ended December 31, 2017.

Net Interest Income for the Year Ended December 31, 2017

Net interest income increased $4.4 million, or 3.2%, to $144.0 million for the year ended December 31, 2017, compared to $139.6 million for the same period in 2016. The increase in net interest income was the result of an $18.6 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $14.2 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016. For the year ended December 31, 2017, our net interest spread decreased to 2.89%, compared to 3.14% for the same period in 2016. Our net interest margin decreased to 3.07% for the year ended December 31, 2017, compared to 3.26% for the same period in 2016. Both the decrease in net interest spread and margin was due to higher average rates paid on interest bearing liabilities, partially offset by the increase in the average yield on earning assets. The increase in average rates paid on interest bearing liabilities was primarily due to overall higher interest rates during 2017 and the non-recurring purchase accretion on the certificate of deposit premium during 2016. The increase in the average yield on earning assets during the year ended December 31, 2017 was the result of increases in the average yields on most of the earning asset categories partially offset by the decrease in the average yield on tax-exempt investment securities combined with the recognition of $1.3 million of interest income on the payoff of a long-term nonaccrual loan during 2016 that did not recur in 2017.

Net Income for the Three Months Ended December 31, 2017

Net income decreased $1.2 million, or 10.7%, for the three months ended December 31, 2017, to $10.3 million compared to the same period in 2016. The decrease was primarily the result of a $4.1 million increase in noninterest expense, a $4.0 million increase in income tax expense and a $2.8 million increase in interest expense, partially offset by a $6.4 million increase in interest income, a $2.4 million increase in noninterest income and a $0.8 million decrease in provision for loan losses.

Noninterest income increased $2.4 million, or 35.5%, for the three months ended December 31, 2017, compared to the same period in 2016, due to a decrease in the net loss on sale of securities available for sale and an increase in deposit services income, partially offset by a decrease in other noninterest income. Other noninterest income decreased primarily due to a decrease in mortgage servicing fee income.

Noninterest expense increased $4.1 million, or 15.7%, for the three months ended December 31, 2017, compared to the same period in 2016, primarily due to acquisition expense of $3.5 million incurred in connection with the Diboll merger.

The increase in income tax expense for the three months ended December 31, 2017 of $4.0 million, or 219.2%, was primarily attributable to $2.4 million associated with the recalculation of our net deferred tax assets as of December 31, 2017 in accordance with the Tax Cuts and Jobs Act and a higher effective tax rate of 21.3%, excluding the effect of the recalculation of our net deferred tax assets, compared to 13.7% for the same three month period in 2016.

Net Income for the Year Ended December 31, 2017

Net income increased $5.0 million, or 10.1%, for the year ended December 31, 2017, to $54.3 million compared to the same period in 2016. The increase was primarily the result of an $18.6 million increase in interest income, a $5.1 million decrease in provision for loan losses and a $3.2 million decrease in noninterest expense, partially offset by a $14.2 million increase in interest expense, a $5.8 million increase in income tax expense and a $1.9 million decrease in noninterest income.

Noninterest income decreased $1.9 million, or 4.9%, for the year ended December 31, 2017 compared to the same period in 2016, due to a decrease in net gain on sale of securities available for sale and a decrease in gain on sale of loans, partially offset by an increase in deposit services income.

Noninterest expense decreased $3.2 million, or 2.9%, for the year ended December 31, 2017, compared to the same period in 2016. The decrease is attributable to a reduction in salaries and employee benefits of $3.5 million, occupancy expense of $1.7 million, other noninterest expense of $1.3 million and professional fees of $1.1 million, partially offset by acquisition expense of $4.4 million incurred in connection with the Diboll merger. The decrease in salaries and employee benefits is primarily due to decreases in direct salary expense and retirement expense which included a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the year ended December 31, 2016. The decrease in occupancy expense is due to the early termination of a lease during the third quarter of 2016. Other noninterest expense decreased primarily due to reductions in the provision expense for losses on loans sold with recourse and unfunded loan commitments, repossessed assets expense and losses on other real estate owned. Professional fees decreased due to less consulting fees associated with cost containment and process improvement efforts initiated in January 2016.

The increase in income tax expense for the year ended December 31, 2017 of $5.8 million, or 56.1%, was attributable to $2.4 million associated with the recalculation of our net deferred tax assets as of December 31, 2017 in accordance with the Tax Cuts and Jobs Act and a higher effective tax rate of 19.5%, excluding the effect of the recalculation of our net deferred tax assets, compared to 17.3% for the same period in 2016.

Conference Call

Southside's management team will host a conference call to discuss its fourth quarter and year end December 31, 2017 financial results on Tuesday, February 6, 2018 at 9:00 a.m. CST. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 8799149 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 2017 Earnings Call.” To listen to the call via webcast, register at www.southside.com/about/investor-relations.

For those unable to listen to the conference call live, a recording will be available from approximately 3:00 p.m. CST February 6, 2018 through February 18, 2018 by accessing the company website, www.southside.com/about/investor-relations.

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) tax-equivalent net interest income, (ii) tax-equivalent net interest margin, (iii) tax-equivalent net interest spread, and (iv) tax-equivalent efficiency ratio, which include the effects of taxable-equivalent adjustments using a federal income tax rate of 35% to increase tax-exempt interest income to a tax-equivalent basis. 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. Tax-equivalent adjustments are reported in notes 2 and 3 to the “Average Balances with Average Yields and Rates” tables below.

Tax-equivalent net interest income, net interest margin and net interest spread. Net interest income on a tax-equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest income from 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 on a tax-equivalent basis is net interest income on a tax-equivalent basis divided by average interest-earning assets on a tax-equivalent basis. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-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.

Tax-equivalent efficiency ratio. The efficiency ratio, calculated on a tax-equivalent basis, 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 of intangibles and certain non-recurring expense by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains (losses) on sales of investment securities and certain non-recurring 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.

In the following table we present, for the years ended December 31, 2017 and 2016 and for five quarterly periods ended December 31, 2017, the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 35.00% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities (dollars in thousands), along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE).

Three Months Ended Years Ended
2017 2016 2017 2016
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Dec. 31, Dec. 31,
Net interest income (GAAP) $38,306 $34,960 $35,424 $35,280 $34,641 $143,970 $139,565
Tax equivalent adjustments:
Loans (1) 1,125 1,103 1,050 1,035 1,045 4,313 4,251
Investment securities (tax-exempt) (2) 3,049 3,544 3,229 3,375 3,657 13,197 13,739
Net interest income (FTE) (3) 42,480 39,607 39,703 39,690 39,343 161,480 157,555
Noninterest income 9,099 9,408 9,293 9,673 6,713 37,473 39,411
Nonrecurring income (4) 483 (627) 75 (122) 2,776 (191) (2,426)
Total revenue $52,062 $48,388 $49,071 $49,241 $48,832 $198,762 $194,540
Noninterest expense $29,933 $25,007 $25,537 $25,858 $25,877 $106,335 $109,522
Pre-tax amortization expense (726) (388) (410) (431) (452) (1,955) (1,940)
Nonrecurring expense (5) (3,479) (432) (466) (17) (31) (4,394) (2,375)
Adjusted noninterest expense $25,728 $24,187 $24,661 $25,410 $25,394 $99,986 $105,207
Efficiency ratio 53.73% 55.30% 55.06% 56.68% 57.54% 55.16% 59.59%
Efficiency ratio (FTE) (3) 49.42% 49.99% 50.26% 51.60% 52.00% 50.30% 54.08%
Average earning assets $5,395,212 $5,199,349 $5,192,897 $5,229,045 $5,165,383 $5,254,431 $4,829,141
Net interest margin 2.82% 2.67% 2.74% 2.74% 2.67% 2.74% 2.89%
Net interest margin (FTE) (3) 3.12% 3.02% 3.07% 3.08% 3.03% 3.07% 3.26%
Net interest spread 2.60% 2.47% 2.56% 2.59% 2.53% 2.56% 2.77%
Net interest spread (FTE) (3) 2.91% 2.82% 2.89% 2.93% 2.90% 2.89% 3.14%

(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.
(3) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(4) Includes net gains and losses on sale of available for sale investment securities, impairment of investments, other-than-temporary impairment charges and lease termination losses.
(5) Includes acquisition expenses, amortization of intangibles, lease termination expenses, foreclosure expenses and FHLB prepayment penalties.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.5 billion in assets as of December 31, 2017, that owns 100% of Southside Bank. Southside Bank currently has 60 banking centers in Texas and operates a network of 84 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 Suni Davis at (903) 531-7235, or suni.davis@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, pending acquisitions, or the 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, 2016, 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.


SOUTHSIDE BANCSHARES, INC.
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
(In thousands, except per share data)
As of
2017 2016
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
ASSETS
Cash and due from banks$79,171 $57,947 $56,033 $54,345 $59,363
Interest earning deposits111,541 120,996 175,039 185,289 102,251
Federal funds sold7,980 5,570 4,760 7,360 8,040
Securities available for sale, at estimated fair value1,538,755 1,292,072 1,397,811 1,444,043 1,479,600
Securities held to maturity, at carrying value909,506 909,844 925,538 929,793 937,487
Federal Home Loan Bank stock, at cost55,729 61,845 61,561 61,305 61,084
Loans held for sale2,001 2,177 3,036 5,303 7,641
Loans3,294,356 2,682,766 2,610,198 2,538,918 2,556,537
Less: Allowance for loan losses(20,781) (19,871) (19,241) (18,485) (17,911)
Net loans3,273,575 2,662,895 2,590,957 2,520,433 2,538,626
Premises & equipment, net133,640 107,099 105,938 105,327 106,003
Goodwill201,246 91,520 91,520 91,520 91,520
Other intangible assets, net22,993 3,379 3,767 4,177 4,608
Bank owned life insurance100,368 99,616 99,011 98,377 97,775
Other assets61,592 69,470 63,511 148,977 69,769
Total assets$6,498,097 $5,484,430 $5,578,482 $5,656,249 $5,563,767
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$1,037,401 $781,701 $757,353 $753,224 $704,013
Interest bearing deposits3,478,046 2,782,474 2,866,720 2,952,072 2,829,063
Total deposits4,515,447 3,564,175 3,624,073 3,705,296 3,533,076
Other borrowings1,026,859 1,151,639 1,186,506 1,213,670 1,316,743
Subordinated notes, net of unamortized debt issuance costs98,248 98,209 98,171 98,133 98,100
Trust preferred subordinated debentures, net of unamortized debt issuance costs60,241 60,240 60,238 60,237 60,236
Other liabilities43,162 54,144 62,429 47,447 37,338
Total liabilities5,743,957 4,928,407 5,031,417 5,124,783 5,045,493
Shareholders' equity754,140 556,023 547,065 531,466 518,274
Total liabilities and shareholders' equity$6,498,097 $5,484,430 $5,578,482 $5,656,249 $5,563,767


At or For the Three Months Ended
2017 2016
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
Income Statement:
Total interest income$50,104 $46,473 $46,009 $44,888 $43,680
Total interest expense11,798 11,513 10,585 9,608 9,039
Net interest income38,306 34,960 35,424 35,280 34,641
Provision for loan losses1,271 960 1,346 1,098 2,065
Net interest income after provision for loan losses37,035 34,000 34,078 34,182 32,576
Noninterest income
Deposit services5,940 5,476 5,255 5,114 5,183
Net (loss) gain on sale of securities available for sale(249) 627 (75) 322 (2,676)
Gain on sale of loans268 347 505 701 461
Trust income1,156 873 899 890 900
Bank owned life insurance income632 636 635 634 649
Brokerage services632 561 682 547 466
Other720 888 1,392 1,465 1,730
Total noninterest income9,099 9,408 9,293 9,673 6,713
Noninterest expense
Salaries and employee benefits15,246 14,395 14,915 15,919 16,194
Occupancy expense3,327 2,981 2,897 2,863 2,825
Acquisition expense3,474 405 473
Advertising, travel & entertainment601 487 548 583 648
ATM and debit card expense1,049 1,024 889 927 820
Professional fees859 996 1,050 939 982
Software and data processing expense882 732 688 725 687
Telephone and communications444 459 476 526 572
FDIC insurance442 441 445 441 215
Amortization expense on intangibles726 388 410 431 452
Other2,883 2,699 2,746 2,504 2,482
Total noninterest expense29,933 25,007 25,537 25,858 25,877
Income before income tax expense16,201 18,401 17,834 17,997 13,412
Income tax expense5,870 3,890 3,353 3,008 1,839
Net income$10,331 $14,511 $14,481 $14,989 $11,573
Common share data:
Weighted-average basic shares outstanding31,370 29,370 29,318 29,288 27,542
Weighted-average diluted shares outstanding31,569 29,570 29,519 29,504 27,731
Shares outstanding end of period35,000 29,433 29,344 29,306 29,261
Net income per common share
Basic$0.33 $0.49 $0.49 $0.51 $0.42
Diluted0.33 0.49 0.49 0.51 0.42
Book value per common share21.55 18.89 18.64 18.14 17.71
Cash dividend paid per common share0.30 0.28 0.28 0.25 0.30
Selected Performance Ratios:
Return on average assets0.70% 1.03% 1.04% 1.08% 0.83%
Return on average shareholders’ equity6.52 10.38 10.70 11.57 9.56
Average yield on earning assets (1)3.99 3.90 3.88 3.82 3.73
Average rate on interest bearing liabilities1.08 1.08 0.99 0.89 0.83
Net interest spread (FTE) (1)2.91 2.82 2.89 2.93 2.90
Net interest margin (FTE) (1)3.12 3.02 3.07 3.08 3.03
Average earning assets to average interest bearing liabilities124.73 123.32 121.57 120.04 119.88
Noninterest expense to average total assets2.03 1.77 1.83 1.87 1.85
Efficiency ratio (FTE) (1)49.42 49.99 50.26 51.60 52.00

(1) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information.


At or For the
Year Ended
December 31,
2017 2016
Income Statement:
Total interest income$187,474 $168,913
Total interest expense43,504 29,348
Net interest income143,970 139,565
Provision for loan losses4,675 9,780
Net interest income after provision for loan losses139,295 129,785
Noninterest income
Deposit services21,785 20,702
Net gain on sale of securities available for sale625 2,836
Gain on sale of loans1,821 2,795
Trust income3,818 3,491
Bank owned life insurance income2,537 2,626
Brokerage services2,422 2,127
Other4,465 4,834
Total noninterest income37,473 39,411
Noninterest expense
Salaries and employee benefits60,475 63,978
Occupancy expense12,068 13,722
Acquisition expense4,352
Advertising, travel & entertainment2,219 2,643
ATM and debit card expense3,889 3,136
Professional fees3,844 4,946
Software and data processing expense3,027 2,911
Telephone and communications1,905 1,931
FDIC insurance1,769 2,141
Amortization expense on intangibles1,955 1,940
Other10,832 12,174
Total noninterest expense106,335 109,522
Income before income tax expense70,433 59,674
Income tax expense16,121 10,325
Net income$54,312 $49,349


Common share data:
Weighted-average basic shares outstanding29,841 27,118
Weighted-average diluted shares outstanding30,047 27,247
Net income per common share
Basic$1.82 $1.82
Diluted1.81 1.81
Book value per common share21.55 17.71
Cash dividend paid per common share1.11 1.01


Selected Performance Ratios:
Return on average assets0.96% 0.94%
Return on average shareholders’ equity9.65 10.54
Average yield on earning assets (1)3.90 3.87
Average yield on interest bearing liabilities1.01 0.73
Net interest spread (FTE) (1)2.89 3.14
Net interest margin (FTE) (1)3.07 3.26
Average earning assets to average interest bearing liabilities122.42 120.02
Noninterest expense to average total assets1.88 2.09
Efficiency ratio (FTE) (1)50.30 54.08

(1) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information.


Southside Bancshares, Inc.
Selected Financial Data (unaudited)
(dollars in thousands)
Three Months Ended
2017 2016
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
Nonperforming assets:$10,472 $9,119 $9,165 $14,079 $15,105
Nonaccrual loans (1)2,937 3,095 3,034 7,261 8,280
Accruing loans past due more than 90 days (1)1 1 6
Restructured loans (2)5,767 5,725 5,884 6,424 6,431
Other real estate owned1,613 298 233 367 339
Repossessed assets154 1 14 26 49
Asset Quality Ratios:
Nonaccruing loans to total loans0.09% 0.12% 0.12% 0.29% 0.32%
Allowance for loan losses to nonaccruing loans707.56 642.04 634.18 254.58 216.32
Allowance for loan losses to nonperforming assets198.44 217.91 209.94 131.29 118.58
Allowance for loan losses to total loans0.63 0.74 0.74 0.73 0.70
Nonperforming assets to total assets0.16 0.17 0.16 0.25 0.27
Net charge-offs to average loans0.05 0.05 0.09 0.08 0.02
Capital Ratios:
Shareholders’ equity to total assets11.61 10.14 9.81 9.40 9.32
Average shareholders’ equity to average total assets10.75 9.91 9.72 9.36 8.66

(1) Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $2.9 million, $3.0 million, $3.0 million, $3.0 million, and $3.1 million in PCI loans restructured as of December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively.

Loan Portfolio Composition

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

Three Months Ended
2017 2016
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
Real Estate Loans:
Construction$475,867 $420,497 $386,853 $362,367 $380,175
1-4 Family Residential805,341 609,159 615,405 622,881 637,239
Commercial1,265,159 1,073,646 1,033,629 974,307 945,978
Commercial Loans266,422 166,919 172,311 176,908 177,265
Municipal Loans345,798 322,286 305,023 297,417 298,583
Loans to Individuals135,769 90,259 96,977 105,038 117,297
Total Loans$3,294,356 $2,682,766 $2,610,198 $2,538,918 $2,556,537

The “Average Balances with Average Yields and Rates” 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 (dollars in thousands) for the periods presented. The interest and related yields presented are on a fully taxable-equivalent basis (FTE) and are therefore-non-GAAP measures.

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
December 31, 2017 September 30, 2017
Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS
Loans (1) (2)$2,897,444 $34,070 4.67% $2,657,562 $30,378 4.54%
Loans held for sale2,285 22 3.82% 5,060 47 3.69%
Securities:
Investment securities (taxable) (4)51,678 237 1.82% 11,085 58 2.08%
Investment securities (tax-exempt) (3) (4)775,681 9,197 4.70% 758,828 9,214 4.82%
Mortgage-backed and related securities (4)1,461,159 9,931 2.70% 1,550,494 10,567 2.70%
Total securities2,288,518 19,365 3.36% 2,320,407 19,839 3.39%
FHLB stock, at cost, and other investments67,127 380 2.25% 66,994 329 1.95%
Interest earning deposits133,007 418 1.25% 144,700 506 1.39%
Federal funds sold6,831 23 1.34% 4,626 21 1.80%
Total earning assets5,395,212 54,278 3.99% 5,199,349 51,120 3.90%
Cash and due from banks60,590 53,220
Accrued interest and other assets410,528 360,073
Less: Allowance for loan losses(19,963) (19,556)
Total assets$5,846,367 $5,593,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$293,392 134 0.18% $260,860 117 0.18%
Time deposits1,031,008 3,178 1.22% 988,380 2,878 1.16%
Interest bearing demand deposits1,696,239 2,585 0.60% 1,562,993 2,425 0.62%
Total interest bearing deposits3,020,639 5,897 0.77% 2,812,233 5,420 0.76%
FHLB borrowings1,137,373 3,935 1.37% 1,237,055 4,156 1.33%
Subordinated notes (5)98,229 1,429 5.77% 98,190 1,413 5.71%
Trust preferred subordinated debentures (6)60,240 532 3.50% 60,239 520 3.42%
Other borrowings9,157 5 0.22% 8,425 4 0.19%
Total interest bearing liabilities4,325,638 11,798 1.08% 4,216,142 11,513 1.08%
Noninterest bearing deposits846,632 773,739
Accrued expenses and other liabilities45,613 48,682
Total liabilities5,217,883 5,038,563
Shareholders’ equity628,484 554,523
Total liabilities and shareholders’ equity$5,846,367 $5,593,086
Net interest income (FTE) (7) $42,480 $39,607
Net interest margin on average earning assets (FTE) (7) 3.12% 3.02%
Net interest spread (FTE) (7) 2.91% 2.82%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,125 and $1,103 for the three months ended December 31, 2017 and September 30, 2017, respectively. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustments of $3,049 and $3,544 for the three months ended December 31, 2017 and September 30, 2017, respectively. See “Non-GAAP Financial Measures.”
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.8 million for both the three months ended December 31, 2017 and September 30, 2017.
(6) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended December 31, 2017 and September 30, 2017 reflect unamortized debt issuance costs of $71,000 and $72,000, respectively.
(7) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information.

Note: As of December 31, 2017 and September 30, 2017, loans totaling $2,937 and $3,095, 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.

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
June 30, 2017 March 31, 2017
Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS
Loans (1) (2)$2,557,093 $29,080 4.56% $2,549,230 $28,241 4.49%
Loans held for sale5,914 60 4.07% 7,023 48 2.77%
Securities:
Investment securities (taxable) (4)58,168 267 1.84% 86,511 377 1.77%
Investment securities (tax-exempt) (3) (4)749,259 9,386 5.02% 779,772 9,929 5.16%
Mortgage-backed and related securities (4)1,594,269 10,818 2.72% 1,570,510 10,045 2.59%
Total securities2,401,696 20,471 3.42% 2,436,793 20,351 3.39%
FHLB stock, at cost, and other investments66,744 299 1.80% 66,547 298 1.82%
Interest earning deposits156,124 364 0.94% 162,235 346 0.86%
Federal funds sold5,326 14 1.05% 7,217 14 0.79%
Total earning assets5,192,897 50,288 3.88% 5,229,045 49,298 3.82%
Cash and due from banks50,961 53,528
Accrued interest and other assets358,041 350,729
Less: Allowance for loan losses(18,495) (18,130)
Total assets$5,583,404 $5,615,172
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$262,009 121 0.19% $252,744 92 0.15%
Time deposits1,014,101 2,723 1.08% 927,610 2,227 0.97%
Interest bearing demand deposits1,616,036 2,294 0.57% 1,707,996 1,962 0.47%
Total interest bearing deposits2,892,146 5,138 0.71% 2,888,350 4,281 0.60%
FHLB borrowings1,213,016 3,551 1.17% 1,302,335 3,464 1.08%
Subordinated notes (5)98,151 1,398 5.71% 98,117 1,393 5.76%
Trust preferred subordinated debentures (6)60,238 494 3.29% 60,237 467 3.14%
Other borrowings7,884 4 0.20% 6,986 3 0.17%
Total interest bearing liabilities4,271,435 10,585 0.99% 4,356,025 9,608 0.89%
Noninterest bearing deposits729,564 693,729
Accrued expenses and other liabilities39,819 39,960
Total liabilities5,040,818 5,089,714
Shareholders’ equity542,586 525,458
Total liabilities and shareholders’ equity$5,583,404 $5,615,172
Net interest income (FTE) (7) $39,703 $39,690
Net interest margin on average earning assets (FTE) (7) 3.07% 3.08%
Net interest spread (FTE) (7) 2.89% 2.93%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,050 and $1,035 for the three months ended June 30, 2017 and March 31, 2017, respectively. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustments of $3,229 and $3,375 for the three months ended June 30, 2017 and March 31, 2017, respectively. See “Non-GAAP Financial Measures.”
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.8 million and $1.9 million for the three months ended June 30, 2017 and March 31, 2017, respectively.
(6) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended June 30, 2017 and March 31, 2017 reflect unamortized debt issuance costs of $73,000 and $74,000, respectively.
(7) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information.

Note: As of June 30, 2017 and March 31, 2017, loans totaling $3,034 and $7,261, 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.

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
December 31, 2016
Avg Balance Interest Avg Yield/Rate
ASSETS
Loans (1) (2)$2,512,820 $27,835 4.41%
Loans held for sale4,845 36 2.96%
Securities:
Investment securities (taxable) (4)115,057 485 1.68%
Investment securities (tax-exempt) (3) (4)812,771 10,352 5.07%
Mortgage-backed and related securities (4)1,520,045 9,294 2.43%
Total securities2,447,873 20,131 3.27%
FHLB stock, at cost, and other investments62,087 210 1.35%
Interest earning deposits134,786 165 0.49%
Federal funds sold2,972 5 0.67%
Total earning assets5,165,383 48,382 3.73%
Cash and due from banks52,415
Accrued interest and other assets359,217
Less: Allowance for loan losses(16,467)
Total assets$5,560,548
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$250,706 76 0.12%
Time deposits926,021 2,261 0.97%
Interest bearing demand deposits1,646,535 1,543 0.37%
Total interest bearing deposits2,823,262 3,880 0.55%
FHLB borrowings1,318,091 3,264 0.99%
Subordinated notes (5)98,011 1,439 5.84%
Trust preferred subordinated debentures (6)60,235 455 3.01%
Other borrowings9,061 1 0.04%
Total interest bearing liabilities4,308,660 9,039 0.83%
Noninterest bearing deposits717,599
Accrued expenses and other liabilities52,714
Total liabilities5,078,973
Shareholders’ equity481,575
Total liabilities and shareholders’ equity$5,560,548
Net interest income (FTE) (7) $39,343
Net interest margin on average earning assets (FTE) (7) 3.03%
Net interest spread (FTE) (7) 2.90%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustment of $1,045 for the three months ended December 31, 2016. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustment of $3,657 for the three months ended December 31, 2016. See “Non-GAAP Financial Measures.”
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $2.0 million for the three months ended December 31, 2016.
(6) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended December 31, 2016 reflects unamortized debt issuance costs of $76,000.
(7) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information.

Note: As of December 31, 2016, loans totaling $8,280 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.

Average Balances with Average Yields and Rates
(unaudited)
Years Ended
December 31, 2017 December 31, 2016
Avg Balance Interest Avg Yield/Rate Avg Balance Interest Avg Yield/Rate
ASSETS
Loans (1) (2)$2,666,265 $121,769 4.57% $2,452,803 $110,653 4.51%
Loans held for sale5,058 177 3.50% 5,036 162 3.22%
Securities:
Investment securities (taxable) (4)51,654 939 1.82% 60,145 1,057 1.76%
Investment securities (tax-exempt) (3) (4)765,854 37,726 4.93% 699,472 36,393 5.20%
Mortgage-backed and related securities (4)1,543,826 41,361 2.68% 1,479,528 37,450 2.53%
Total securities2,361,334 80,026 3.39% 2,239,145 74,900 3.35%
FHLB stock, at cost, and other investments66,855 1,306 1.95% 56,071 798 1.42%
Interest earning deposits148,924 1,634 1.10% 75,339 385 0.51%
Federal funds sold5,995 72 1.20% 747 5 0.67%
Total earning assets5,254,431 204,984 3.90% 4,829,141 186,903 3.87%
Cash and due from banks54,590 51,160
Accrued interest and other assets369,872 373,278
Less: Allowance for loan losses(19,042) (18,465)
Total assets$5,659,851 $5,235,114
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$267,345 464 0.17% $244,826 280 0.11%
Time deposits990,553 11,006 1.11% 941,716 7,984 0.85%
Interest bearing demand deposits1,645,557 9,266 0.56% 1,681,422 5,991 0.36%
Total interest bearing deposits2,903,455 20,736 0.71% 2,867,964 14,255 0.50%
FHLB borrowings1,222,033 15,106 1.24% 1,060,631 11,751 1.11%
Subordinated notes (5)98,172 5,633 5.74% 27,860 1,628 5.84%
Trust preferred subordinated debentures (6)60,238 2,013 3.34% 60,233 1,706 2.83%
Other borrowings8,120 16 0.20% 6,798 8 0.12%
Total interest bearing liabilities4,292,018 43,504 1.01% 4,023,486 29,348 0.73%
Noninterest bearing deposits761,370 693,929
Accrued expenses and other liabilities43,440 49,275
Total liabilities5,096,828 4,766,690
Shareholders’ equity563,023 468,424
Total liabilities and shareholders’ equity$5,659,851 $5,235,114
Net interest income (FTE) (7) $161,480 $157,555
Net interest margin on average earning assets (FTE) (7) 3.07% 3.26%
Net interest spread (FTE) (7) 2.89% 3.14%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $4,313 and $4,251 for the years ended December 31, 2017 and 2016, respectively. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustments of $13,197 and $13,739 for years ended December 31, 2017 and 2016, respectively. See “Non-GAAP Financial Measures.”
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.8 million and $555,000 for the years ended December 31, 2017 and 2016, respectively.
(6) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the years ended December 31, 2017 and 2016 reflect unamortized debt issuance costs of $73,000 and $77,000, respectively.
(7) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures. See “Non-GAAP Financial Measures” for more information.

Note: As of December 31, 2017 and 2016, loans totaling $2,937 and $8,280, 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.

Source:Southside Bancshares, Inc.