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Southside Bancshares, Inc. Announces Net Income for the Three and Six Months Ended June 30, 2013

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TYLER, Texas, July 25, 2013 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (Nasdaq:SBSI) today reported its financial results for the three and six months ended June 30, 2013.

Southside reported net income of $10.1 million for the three months ended June 30, 2013, an increase of $2.3 million, or 30.3%, when compared to the same period in 2012. Net income for the six months ended June 30, 2013 increased $729,000, or 4.1%, to $18.6 million when compared to $17.9 million for the same period in 2012.

Diluted earnings per common share were $0.56 and $0.42 for the three months ended June 30, 2013 and June 30, 2012, respectively, an increase of $0.14, or 33.3%. For the six months ended June 30, 2013, diluted earnings per common share increased $0.06, or 6.1% to $1.04 when compared to $0.98 for the same period in 2012.

The return on average shareholders' equity for the six months ended June 30, 2013, was 14.52%, compared to 13.51% for the same period in 2012. The annual return on average assets was 1.14% for the six months ended June 30, 2013 compared to 1.09% for the same period in 2012.

"It is a pleasure to report that Southside enjoyed an excellent second quarter," stated Sam Dawson, President and Chief Executive Officer of Southside Bancshares, Inc. "One of the drivers of the 30.3% increase in net income during the second quarter when compared to the same period in 2012 was the increase in our net interest margin and spread. We also experienced a nice increase in our net interest margin and spread on a linked quarter basis as the average yield of our loans and securities increased, coupled with a decrease in our cost of funds. During the six months ended June 30, 2013 loans increased $30.5 million or an annualized 4.8%. Lower credit costs continued as asset quality ratios remained sound and improved on a linked quarter basis with nonperforming assets to total assets decreasing to 0.36%."

"In addition to expanding our footprint in Austin during the first six months of 2013, we have also made some key strategic hires in our East Texas market area. Joining us are two former East Texas regional bank presidents to complement our strong team of lenders in East Texas. Given these new investments, we are excited about our future loan growth opportunities. Southside Financial Group, our subprime auto company has been able to acquire several attractive loan packages and has grown that loan portfolio approximately $17 million during 2013."

"We are fortunate that Texas has several growing and diverse markets. We continue to evaluate strategic growth opportunities either through acquisition or branch expansion that would allow us to export our traditional community banking model and increase franchise value. Our financial strength and organically grown capital provides us strategically important future flexibility."

"During the quarter we sold lower coupon and longer duration municipal securities and purchased municipal securities with higher coupons, increasing our average municipal coupon by approximately 47 basis points. Mortgage-backed securities (MBS) purchases included U.S. Agency Commercial MBS with maturities less than 10 years and short duration U.S. Agency MBS at lower premiums that created a favorable risk reward scenario. At June 30, 2013, total unamortized premium for our MBS portfolio had decreased to approximately $33 million from $41 million at March 31, 2013."

"We continued to manage both sides of the balance sheet during the second quarter and added additional long-term funding while at the same time prepaying higher priced short-term FHLB advances. In April, we prepaid $66.2 million of FHLB advances with an average rate of 4.03%. In June we prepaid an additional $24 million of FHLB advances with an average rate of 3.02%. This represented all of our higher priced advances maturing through February of 2014. We paid prepayment fees of $988,000 which were more than offset by gains on the sale of securities. These prepayments will provide an immediate positive impact to our net interest margin and spread. We will continue to add long-term funding as a hedge against future potential increases in interest rates."

"We are excited about building on this excellent quarter. Thank you for your continued support and encouragement."

Loans and Deposits

For the six months ended June 30, 2013, total loans increased by $30.5 million, or 2.4%, when compared to December 31, 2012. During the six months ended June 30, 2013, real estate 1-4 family increased $16.4 million, loans to individuals increased $11.3 million, construction loans increased $9.7 million, municipal loans increased $3.2 million, commercial loans decreased $6.1 million, and real estate other decreased $4.1 million.

Nonperforming assets decreased during the first six months of 2013 by $2.4 million, or 16.6%, to $12.3 million, or 0.36% of total assets at June 30, 2013, when compared to 0.45% at December 31, 2012. This decrease is primarily a result of a decrease in nonaccrual loans and repossessed assets.

During the six months ended June 30, 2013, deposits, net of brokered deposits, increased $130.9 million, or 5.6%, compared to December 31, 2012. During this six month period public fund deposits increased $6.6 million.

Net Interest Income for the Three Months

Net interest income increased $1.3 million, or 5.7%, to $23.8 million for the three months ended June 30, 2013, when compared to $22.5 million for the same period in 2012. For the three months ended June 30, 2013, our net interest spread increased to 3.31% when compared to 2.98% for the same period in 2012. The net interest margin increased to 3.47% for the three months ended June 30, 2013 compared to 3.21% for the same period in 2012. The primary reason for the increase in the net interest spread and margin was the decrease in the yield on the interest bearing liabilities of 41 basis points compared to the same period in 2012.

Net Interest Income for the Six Months

Net interest income decreased $1.8 million, or 3.8%, to $44.8 million for the six months ended June 30, 2013, when compared to $46.5 million for the same period in 2012. For the six months ended June 30, 2013, our net interest spread increased to 3.17% from 3.11% for the same period in 2012. The net interest margin decreased to 3.34% for the six months ended June 30, 2013, compared to 3.36% for the same period in 2012.

Net Income for the Three Months

Net income increased $2.3 million, or 30.3%, for the three months ended June 30, 2013, to $10.1 million when compared to the same period in 2012. The increase was primarily the result of an increase in net interest income of $1.3 million coupled with a $1.8 million increase in gain on sale of securities and a decrease of $1.4 million in FHLB advance option impairment charges, which was partially offset by an increase in salary and benefit expense of $1.3 million and FHLB prepayment penalties of $1.0 million paid during the three months ended June 30, 2013.

Noninterest expense increased $2.1 million, or 10.8%, for the three months ended June 30, 2013, compared to the same period in 2012 primarily due to the increase in salaries and employee benefits expense and FHLB prepayment penalties.

Net Income for the Six Months

Net income for the six months ended June 30, 2013 increased $729,000, or 4.1%, to $18.6 million, when compared to $17.9 million for the same period in 2012. This increase was mainly due to a $2.7 million decrease in provision for loan losses and a $1.8 million decrease in FHLB advance impairment charges, which was mostly offset by a decrease in net interest income of $1.8 million and an increase of $2.6 million in salary and benefit expense and FHLB prepayment penalties of $1.0 million.

Noninterest expense increased $3.9 million, or 10.3%, primarily due to the increase in salaries and employee benefits expense and FHLB prepayment penalties.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $3.4 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 50 banking centers in Texas and operates a network of 49 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 Susan Hill at (903) 531-7220, or susan.hill@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, growth and 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. As a result, actual income gains and losses could materially differ from those that have been estimated.

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, 2012 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
June 30,
2013
At
December 31,
2012
At
June 30,
2012
(dollars in thousands)
(unaudited)
Selected Financial Condition Data (at end of period):
Total assets $ 3,384,978 $ 3,237,403 $ 3,400,956
Loans 1,293,429 1,262,977 1,183,200
Allowance for loan losses 18,370 20,585 20,194
Mortgage-backed and related securities:
Available for sale, at estimated fair value 821,760 806,360 1,204,759
Held to maturity, at amortized cost 240,514 245,538 330,138
Investment securities:
Available for sale, at estimated fair value 488,321 617,707 418,215
Held to maturity, at amortized cost 302,775 1,009 1,010
Federal Home Loan Bank stock, at cost 27,153 27,889 34,334
Deposits 2,499,338 2,351,897 2,395,872
Long-term obligations 502,119 429,408 427,300
Equity 235,433 257,763 263,356
Nonperforming assets 12,270 14,717 13,778
Nonaccrual loans 8,179 10,314 10,077
Accruing loans past due more than 90 days 15 1
Restructured loans 3,053 2,998 2,352
Other real estate owned 772 686 960
Repossessed assets 266 704 388
Asset Quality Ratios:
Nonaccruing loans to total loans 0.63% 0.82% 0.85%
Allowance for loan losses to nonaccruing loans 224.60 199.58 200.40
Allowance for loan losses to nonperforming assets 149.71 139.87 146.57
Allowance for loan losses to total loans 1.42 1.63 1.71
Nonperforming assets to total assets 0.36 0.45 0.41
Net charge-offs to average loans 0.75 0.74 0.63
Capital Ratios:
Shareholders' equity to total assets 6.96 7.96 7.74
Average shareholders' equity to average total assets 7.88 8.17 8.05
Loan Portfolio Composition
The following table sets forth loan totals by category for the periods presented:
At
June 30,
2013
At
December 31,
2012
At
June 30,
2012
(in thousands)
(unaudited)
Real Estate Loans:
Construction $ 123,493 $ 113,744 $ 105,675
1-4 Family Residential 385,241 368,845 325,720
Other 232,632 236,760 214,885
Commercial Loans 153,985 160,058 146,499
Municipal Loans 224,134 220,947 215,256
Loans to Individuals 173,944 162,623 175,165
Total Loans $ 1,293,429 $ 1,262,977 $ 1,183,200
At or For the
Three Months Ended
June 30,
At or For the
Six Months Ended
June 30,
2013 2012 2013 2012
(dollars in thousands)
(unaudited)
Selected Operating Data:
Total interest income $ 28,185 $ 29,442 $ 54,216 $ 61,158
Total interest expense 4,344 6,897 9,445 14,617
Net interest income 23,841 22,545 44,771 46,541
Provision for loan losses 2,021 2,174 2,513 5,226
Net interest income after provision for loan losses 21,820 20,371 42,258 41,315
Noninterest income
Deposit services 3,904 3,838 7,657 7,586
Gain on sale of securities available for sale 5,052 3,297 9,417 9,269
Loss on sale of securities carried at fair value through income (13) (498)
Total other-than-temporary impairment losses (21) (52) (21)
Portion of loss recognized in other comprehensive income (before taxes) (19) 10 (160)
Net impairment losses recognized in earnings (40) (42) (181)
FHLB advance option impairment charges (1,364) (1,836)
Gain on sale of loans 241 298 560 429
Trust income 733 669 1,453 1,346
Bank owned life insurance income 264 254 518 520
Other 953 1,123 1,844 2,234
Total noninterest income 11,147 8,062 21,407 18,869
Noninterest expense
Salaries and employee benefits 13,401 12,142 26,610 23,975
Occupancy expense 1,897 1,851 3,768 3,609
Advertising, travel & entertainment 656 603 1,297 1,207
ATM and debit card expense 303 287 684 566
Director fees 273 273 537 541
Supplies 169 222 419 381
Professional fees 562 612 1,202 1,303
Telephone and communications 384 445 835 851
FDIC insurance 409 414 830 884
FHLB prepayment penalties 988 988
Other 2,124 2,247 4,315 4,301
Total noninterest expense 21,166 19,096 41,485 37,618
Income before income tax expense 11,801 9,337 22,180 22,566
Provision for income tax expense 1,729 1,608 3,583 4,698
Net income $ 10,072 $ 7,729 $ 18,597 $ 17,868
Common share data:
Weighted-average basic shares outstanding 17,849 18,210 17,853 18,203
Weighted-average diluted shares outstanding 17,881 18,223 17,879 18,216
Net income per common share
Basic $ 0.56 $ 0.42 $ 1.04 $ 0.98
Diluted 0.56 0.42 1.04 0.98
Book value per common share 13.18 14.45
Cash dividend paid per common share 0.20 0.20 0.40 0.38
At or For the
Three Months Ended
June 30,
At or For the
Six Months Ended
June 30,
2013 2012 2013 2012
(unaudited) (unaudited)
Selected Performance Ratios:
Return on average assets 1.21% 0.92% 1.14% 1.09%
Return on average shareholders' equity 15.65 11.68 14.52 13.51
Average yield on interest earning assets 4.02 4.10 3.96 4.32
Average yield on interest bearing liabilities 0.71 1.12 0.79 1.21
Net interest spread 3.31 2.98 3.17 3.11
Net interest margin 3.47 3.21 3.34 3.36
Average interest earnings assets to average interest bearing liabilities 128.30 126.12 127.57 125.71
Noninterest expense to average total assets 2.54 2.28 2.55 2.29
Efficiency ratio 60.7 60.89 64.25 59.00

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)
Six Months Ended
June 30, 2013 June 30, 2012
AVG
BALANCE
INTEREST AVG
YIELD
AVG
BALANCE
INTEREST AVG
YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2) $ 1,277,991 $ 37,950 5.99% $ 1,137,397 $ 36,132 6.39%
Loans Held For Sale 1,786 28 3.16% 1,637 31 3.81%
Securities:
Investment Securities (Taxable)(4) 64,835 533 1.66% 5,167 51 1.98%
Investment Securities (Tax-Exempt)(3)(4) 602,757 12,971 4.34% 278,435 8,473 6.12%
Mortgage-backed and Related Securities (4) 1,038,261 8,616 1.67% 1,592,499 21,035 2.66%
Total Securities 1,705,853 22,120 2.61% 1,876,101 29,559 3.17%
FHLB stock and other investments, at cost 27,999 99 0.71% 34,553 133 0.77%
Interest Earning Deposits 56,369 78 0.28% 14,750 15 0.20%
Total Interest Earning Assets 3,069,998 60,275 3.96% 3,064,438 65,870 4.32%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 46,485 42,004
Bank Premises and Equipment 50,171 50,551
Other Assets 127,989 167,295
Less: Allowance for Loan Loss (19,044) (19,501)
Total Assets $ 3,275,599 $ 3,304,787
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits $ 106,444 71 0.13% $ 94,647 73 0.16%
Time Deposits 618,157 2,280 0.74% 821,752 4,371 1.07%
Interest Bearing Demand Deposits 1,070,951 1,720 0.32% 859,343 1,716 0.40%
Total Interest Bearing Deposits 1,795,552 4,071 0.46% 1,775,742 6,160 0.70%
Short-term Interest Bearing Liabilities 152,090 1,639 2.17% 311,948 3,326 2.14%
Long-term Interest Bearing Liabilities – FHLB Dallas 398,570 3,011 1.52% 289,743 3,476 2.41%
Long-term Debt (5) 60,311 724 2.42% 60,311 1,655 5.52%
Total Interest Bearing Liabilities 2,406,523 9,445 0.79% 2,437,744 14,617 1.21%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 559,762 547,150
Other Liabilities 51,087 53,926
Total Liabilities 3,017,372 3,038,820
SHAREHOLDERS' EQUITY 258,227 265,967
Total Liabilities and Shareholders' Equity $ 3,275,599 $ 3,304,787
NET INTEREST INCOME $ 50,830 $ 51,253
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.34% 3.36%
NET INTEREST SPREAD 3.17% 3.11%
(1) Interest on loans includes fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,923 and $1,867 for the six months ended June 30, 2013 and June 30, 2012, respectively.
(3) Interest income includes taxable-equivalent adjustments of $4,136 and $2,845 for the six months ended June 30, 2013 and June 30, 2012, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents junior subordinated debentures issued by us to Southside Statutory Trust III, IV, and V in connection with the issuance by Southside Statutory Trust III of $20 million of trust preferred securities, Southside Statutory Trust IV of $22.5 million of trust preferred securities, Southside Statutory Trust V of $12.5 million of trust preferred securities and junior subordinated debentures issued by Fort Worth Bancshares, Inc. to Magnolia Trust Company I in connection with the issuance by Magnolia Trust Company I of $3.5 million of trust preferred securities.
Note: As of June 30, 2013 and June 30, 2012, loans totaling $8,179 and $10,077, respectively, were on nonaccrual status. The 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
June 30, 2013 June 30, 2012
AVG
BALANCE
INTEREST AVG
YIELD
AVG
BALANCE
INTEREST AVG
YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2) $ 1,288,494 $ 19,322 6.01% $ 1,165,141 $ 18,442 6.37%
Loans Held For Sale 1,311 12 3.67% 1,568 14 3.59%
Securities:
Investment Securities (Taxable)(4) 39,719 169 1.71% 5,660 20 1.42%
Investment Securities (Tax-Exempt)(3)(4) 691,435 7,167 4.16% 307,465 4,483 5.86%
Mortgage-backed and Related Securities (4) 1,036,866 4,680 1.81% 1,606,106 8,872 2.22%
Total Securities 1,768,020 12,016 2.73% 1,919,231 13,375 2.80%
FHLB stock and other investments, at cost 29,074 34 0.47% 35,202 54 0.62%
Interest Earning Deposits 46,362 35 0.30% 8,226 9 0.44%
Total Interest Earning Assets 3,133,261 31,419 4.02% 3,129,368 31,894 4.10%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 44,334 41,112
Bank Premises and Equipment 50,214 50,509
Other Assets 126,262 167,246
Less: Allowance for Loan Loss (18,095) (19,945)
Total Assets $ 3,335,976 $ 3,368,290
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits $ 108,446 35 0.13% $ 96,527 36 0.15%
Time Deposits 614,115 1,118 0.73% 782,371 1,894 0.97%
Interest Bearing Demand Deposits 1,080,605 848 0.31% 863,308 835 0.39%
Total Interest Bearing Deposits 1,803,166 2,001 0.45% 1,742,206 2,765 0.64%
Short-term Interest Bearing Liabilities 149,913 389 1.04% 367,195 1,734 1.90%
Long-term Interest Bearing Liabilities – FHLB Dallas 428,800 1,592 1.49% 311,550 1,573 2.03%
Long-term Debt (5) 60,311 362 2.41% 60,311 825 5.50%
Total Interest Bearing Liabilities 2,442,190 4,344 0.71% 2,481,262 6,897 1.12%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 580,572 565,344
Other Liabilities 55,120 55,593
Total Liabilities 3,077,882 3,102,199
SHAREHOLDERS' EQUITY 258,094 266,091
Total Liabilities and Shareholders' Equity $ 3,335,976 $ 3,368,290
NET INTEREST INCOME $ 27,075 $ 24,997
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.47% 3.21%
NET INTEREST SPREAD 3.31% 2.98%
(1) Interest on loans includes fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $944 and $930 for the three months ended June 30, 2013 and June 30, 2012, respectively.
(3) Interest income includes taxable-equivalent adjustments of $2,290 and $1,522 for the three months ended June 30, 2013 and June 30, 2012, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents junior subordinated debentures issued by us to Southside Statutory Trust III, IV, and V in connection with the issuance by Southside Statutory Trust III of $20 million of trust preferred securities, Southside Statutory Trust IV of $22.5 million of trust preferred securities, Southside Statutory Trust V of $12.5 million of trust preferred securities and junior subordinated debentures issued by Fort Worth Bancshares, Inc. to Magnolia Trust Company I in connection with the issuance by Magnolia Trust Company I of $3.5 million of trust preferred securities.
Note: As of June 30, 2013 and June 30, 2012, loans totaling $8,179 and $10,077, respectively, were on nonaccrual status. The policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

CONTACT: Susan Hill (903) 531-7220 susan.hill@southside.com

Source:Southside Bancshares, Inc.