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Southside Bancshares, Inc. Announces Financial Results for the Third Quarter Ended September 30, 2022

  • Third quarter net income of $27.0 million;

  • Linked quarter loan growth, net of Paycheck Protection Program (“PPP”) loans, of 2.6%;
  • Linked quarter net interest margin increased to 3.15% and net interest margin (FTE) increased to 3.36%(1);
  • Annualized return on third quarter average assets of 1.43%;
  • Annualized return on third quarter average tangible common equity of 19.94%(1); and
  • Nonperforming assets remained low at 0.16% of total assets.

TYLER, Texas, Oct. 25, 2022 (GLOBE NEWSWIRE) — Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ: SBSI) today reported its financial results for the quarter ended September 30, 2022. Southside reported net income of $27.0 million for the three months ended September 30, 2022, a decrease of $2.4 million, or 8.0%, compared to $29.3 million for the same period in 2021. Earnings per diluted common share decreased $0.06, or 6.7%, to $0.84 for the three months ended September 30, 2022, from $0.90 for the same period in 2021. The annualized return on average shareholders’ equity for the three months ended September 30, 2022 was 14.23%, compared to 12.89% for the same period in 2021.  The annualized return on average assets was 1.43% for the three months ended September 30, 2022, compared to 1.61% for the same period in 2021.

“Third quarter financial results for 2022 were highlighted by net income of $27.0 million, earnings per diluted common share of $0.84, annualized linked quarter loan growth of 10.1% and a 34.5% annualized linked quarter growth in net interest income,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “Our asset quality remained strong and our tax-equivalent net interest margin increased six basis points to 3.36%. Continued migration into Texas from other states, job growth and company relocations has mitigated much of the impact of higher costs associated with inflation and higher interest rates. Overall, we believe that the long-term economic conditions and growth prospects in the markets we serve remain solid.”

Operating Results for the Three Months Ended September 30, 2022

Net income was $27.0 million for the three months ended September 30, 2022, compared to $29.3 million for the same period in 2021, a decrease of $2.4 million, or 8.0%. Earnings per diluted common share were $0.84 and $0.90 for the three months ended September 30, 2022 and 2021, respectively. The decrease in net income was primarily a result of an increase in provision for credit losses, a decrease in noninterest income and an increase in noninterest expense, partially offset by an increase in net interest income and a decrease in income tax expense. For the three months ended September 30, 2022, Southside recorded a provision for credit losses of $1.5 million, compared to a reversal of provision for credit losses of $5.1 million for the same period in 2021. Annualized returns on average assets and average shareholders’ equity for the three months ended September 30, 2022 were 1.43% and 14.23%, respectively, compared to 1.61% and 12.89%, respectively, for the three months ended September 30, 2021.  Our efficiency ratio and tax-equivalent efficiency ratio(1) were 50.09% and 47.42%, respectively, for the three months ended September 30, 2022, compared to 50.64% and 47.92%, respectively, for the three months ended September 30, 2021, and 50.61% and 47.74%, respectively, for the three months ended June 30, 2022.

Net interest income for the three months ended September 30, 2022 was $55.5 million, compared to $48.2 million for the same period in 2021, an increase of 15.2%. The increase in net interest income compared to the same period in 2021 was due to the increase in interest income, a result of the increase in the average yield and the average balance of interest earning assets, partially offset by an increase in interest expense on our interest bearing liabilities due to higher interest rates, the change in the mix of our interest bearing liabilities and a decrease in the interest income from PPP loans. Linked quarter, net interest income increased $4.4 million, or 8.7%, compared to $51.1 million during the three months ended June 30, 2022. The increase in net interest income was primarily due to an increase in the average yield and balance of interest earning assets, which more than offset the increase in the average rate paid and balance of interest bearing liabilities.

Our net interest margin and tax-equivalent net interest margin(1) increased to 3.15% and 3.36%, respectively, for the three months ended September 30, 2022, compared to 2.96% and 3.16%, respectively, for the same period in 2021. Linked quarter, net interest margin increased eight basis points from 3.07% and tax-equivalent net interest margin(1) increased six basis points from 3.30% for the three months ended June 30, 2022.

Noninterest income was $10.3 million for the three months ended September 30, 2022, a decrease of $2.5 million, or 19.6%, compared to $12.8 million for the same period in 2021. The decrease was due to a net loss on sale of securities available for sale (“AFS”) of $0.1 million for the three months ended September 30, 2022, compared to a net gain of $1.4 million for the same period in 2021 and decreases in deposit services income, gain on sale of loans, brokerage services income and other noninterest income. On a linked quarter basis, noninterest income increased $1.2 million, or 12.9%, compared to the three months ended June 30, 2022. The increase was due to a $2.1 million decrease in net loss on sale of securities AFS, partially offset by a decrease in brokerage services and deposit services income.

Noninterest expense increased $1.7 million, or 5.4%, to $33.5 million for the three months ended September 30, 2022, compared to $31.8 million for the same period in 2021. The primary increase was in salaries and employee benefits. Several additional expense categories increased, including other noninterest expense, net occupancy expense, professional fees, software and data processing expense and advertising, travel and entertainment expense, however when combined, such expenses were partially offset by the loss on the redemption of subordinated notes recorded in the third quarter of 2021. On a linked quarter basis, noninterest expense increased $1.4 million, or 4.2%, compared to the three months ended June 30, 2022, primarily due to an increase in salaries and employee benefits.

Income tax expense decreased $1.1 million, or 22.1%, for the three months ended September 30, 2022, compared to the same period in 2021. On a linked quarter basis, income tax expense increased $0.6 million, or 17.5%. Our effective tax rate (“ETR”) decreased to 12.6% for the three months ended September 30, 2022, compared to 14.5% for the three months ended September 30, 2021, and increased from 11.5% for the three months ended June 30, 2022.

Operating Results for the Nine Months Ended September 30, 2022

Net income was $77.4 million for the nine months ended September 30, 2022, compared to $84.7 million for the same period in 2021, a decrease of $7.4 million, or 8.7%. Earnings per diluted common share were $2.39 for the nine months ended September 30, 2022, compared to $2.59 for the same period in 2021, a decrease of 7.7%. The decrease in net income was largely driven by an increase in provision for credit losses, a decrease in noninterest income, and an increase in noninterest expense, partially offset by the increase in net interest income and the decrease in income tax expense. For the nine months ended September 30, 2022, we had a provision for credit losses of $1.2 million, compared to a reversal of provision for credit losses of $13.5 million for the same period in 2021. Annualized returns on average assets and average shareholders’ equity for the nine months ended September 30, 2022 were 1.42% and 12.92%, respectively, compared to 1.60% and 12.80%, respectively, for the nine months ended September 30, 2021. Our efficiency ratio and tax-equivalent efficiency ratio(1) were 50.46% and 47.76%, respectively, for the nine months ended September 30, 2022, compared to 52.23% and 49.53%, respectively, for the nine months ended September 30, 2021.

Net interest income was $155.5 million for the nine months ended September 30, 2022, compared to $140.2 million for the same period in 2021, due to the increase in interest income, a result of the increase in the average yield and balance of our interest earning assets, partially offset by the increase in interest expense on our interest bearing liabilities due to the increase in interest rates, the change in the mix of our interest bearing liabilities and a decrease in the interest income from PPP loans.

Our net interest margin and tax-equivalent net interest margin(1) were 3.08% and 3.29%, respectively, for the nine months ended September 30, 2022, compared to 2.94% and 3.14%, respectively, for the same period in 2021. The increase in net interest margin was due to higher average balances and yields on our interest earning assets during the nine months ended September 30, 2022.

Noninterest income was $30.1 million for the nine months ended September 30, 2022, a decrease of 19.4%, compared to $37.3 million for the same period in 2021. The decrease was due to the net loss on sale of securities AFS of $3.8 million for the nine months ended September 30, 2022, compared to a net gain of $3.4 million for the same period in 2021 and a decrease in gain on sale of loans, partially offset by an increase in other noninterest income.

Noninterest expense was $96.8 million for the nine months ended September 30, 2022, compared to $93.7 million for the same period in 2021, an increase of $3.1 million, or 3.3%. The primary increase was in salaries and employee benefits. Several additional expense categories increased, including software and data processing expense, advertising, travel and entertainment expense and net occupancy expense, however when combined, such expenses were partially offset by the loss on the redemption of subordinated notes recorded in the third quarter of 2021.

Income tax expense decreased $2.3 million, or 18.2%, for the nine months ended September 30, 2022, compared to the same period in 2021. Our ETR was approximately 11.8% and 13.0% for the nine months ended September 30, 2022 and 2021, respectively. The lower ETR for the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to an increase in tax-exempt income as a percentage of pre-tax income.

Balance Sheet Data

At September 30, 2022, we had $7.45 billion in total assets, compared to $7.26 billion at December 31, 2021 and $7.14 billion at September 30, 2021.

Loans at September 30, 2022 were $4.06 billion, an increase of $415.9 million, or 11.4%, compared to $3.65 billion at September 30, 2021. Our PPP loans, a component of the commercial loan category, decreased $67.2 million over that same period due to forgiveness payments received for loans funded under the Coronavirus Aid, Relief, and Economic Security Act. Excluding PPP loans, total loans increased $483.1 million, or 13.5%, due to increases of $296.8 million in commercial real estate loans, $132.3 million in construction loans, $57.0 million in commercial loans (excluding PPP loans) and $22.0 million in municipal loans. The increases were partially offset by decreases of $14.0 million in 1-4 family residential loans and $10.9 million in loans to individuals. Excluding a $2.7 million decrease in PPP loans during the quarter, linked quarter loans increased $103.1 million, or 2.6%, due to increases of $67.2 million in commercial real estate loans, $33.9 million in construction loans, $7.2 million in commercial loans (excluding PPP loans), and $6.0 million in 1-4 family residential loans. These increases were partially offset by decreases of $8.0 million in municipal loans and $3.1 million in loans to individuals.

Securities at September 30, 2022 were $2.58 billion, a decrease of $269.8 million, or 9.5%, compared to $2.85 billion at September 30, 2021. Linked quarter, securities decreased $241.3 million, or 8.6%, from $2.82 billion at June 30, 2022, a result of sales of securities, principal payments and an increase in the unrealized losses in the portfolio that more than offset purchases during the quarter. During the third quarter, we transferred additional municipal securities and U.S. Agency MBS with fair values of approximately $41.8 million and $28.4 million, respectively, to held to maturity (“HTM”). All transfers from AFS to HTM were at the fair market value on the date of transfer. There was no impact to the income statement as a result of these transfers.

Deposits at September 30, 2022 were $6.18 billion, an increase of $849.5 million, or 15.9%, compared to $5.33 billion at September 30, 2021. Linked quarter, deposits decreased $67.3 million, or 1.1%, from $6.25 billion at June 30, 2022. During the three months ended September 30, 2022, brokered deposits increased $102.3 million, or 15.5%, compared to June 30, 2022, due to an increase in the brokered CD category, and increased $648.5 million, or 571.4%, compared to September 30, 2021, primarily due to funding our cash flow hedge swaps in place of the Federal Home Loan Bank advances to obtain lower cost funding.

On March 1, 2022, our board of directors approved a Stock Repurchase Plan, authorizing the repurchase, from time to time, of up to 1.0 million shares of the Company’s outstanding common stock. Repurchases may be carried out in open market purchases, privately negotiated transactions or pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The Company has no obligation to repurchase any shares under the Stock Repurchase Plan and may suspend or discontinue the plan at any time. During the third quarter ended September 30, 2022, we purchased 8,613 shares of common stock at an average price of $35.93 pursuant to the Stock Repurchase Plan, resulting in 685,201 authorized shares remaining. Subsequent to September 30, 2022, there have been no additional purchases.

Asset Quality

Nonperforming assets at September 30, 2022 were $11.7 million, or 0.16% of total assets, a decrease of $0.7 million, or 5.7%, compared to $12.4 million, or 0.17% of total assets, at September 30, 2021, and a slight decrease from $11.8 million, or 0.16% of total assets, at June 30, 2022.

The allowance for loan losses decreased to $36.5 million, or 0.90% of total loans, at September 30, 2022, compared to $38.0 million, or 1.04% of total loans, at September 30, 2021. The decrease was primarily due to improved asset quality, offset slightly by continued economic uncertainty related to inflation and recessionary concerns. The allowance for loan losses was $35.4 million, or 0.89% of total loans, at June 30, 2022.

We recorded a provision for credit losses for loans of $1.3 million and a reversal of provision of $4.4 million for the three month periods ended September 30, 2022 and 2021, respectively, compared to a reversal of provision of $0.1 million for the three months ended June 30, 2022. Net charge-offs were $0.2 million for the three months ended September 30, 2022, compared to net charge-offs of $0.5 million for the three months ended September 30, 2021 and net recoveries of $37,000 for the three months ended June 30, 2022. Net charge-offs were $0.2 million for the nine months ended September 30, 2022, compared to net charge-offs of $0.7 million for the nine months ended September 30, 2021.

We recorded a provision for credit losses for off-balance-sheet credit exposures of $0.2 million and a reversal of provision of $0.7 million for the three month periods ended September 30, 2022 and 2021, respectively, compared to a reversal of provision of $0.5 million for the three months ended June 30, 2022. For the nine months ended September 30, 2022 and 2021, we recorded reversals of provision of $0.3 million and $3.3 million, respectively. The balance of the allowance for off-balance-sheet credit exposures at September 30, 2022 was $2.1 million and is included in other liabilities.

Dividend

Southside Bancshares, Inc. declared a third quarter cash dividend of $0.34 per share on August 4, 2022, which was paid on September 1, 2022, to all shareholders of record as of August 18, 2022.

_______________

(1) Refer to “Non-GAAP Financial Measures” below and to “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for more information and for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Conference Call

Southside’s management team will host a conference call to discuss its third quarter ended September 30, 2022 financial results on Tuesday, October 25, 2022 at 11:00 a.m. CDT. The conference call can be accessed by webcast, for listen-only mode, on the company website, https://investors.southside.com.

Those interested in participating in the question and answer session, or others who prefer to call-in, can register at https://register.vevent.com/register/BId92908286bbf41b5b784e887de1d8551 to receive the dial-in number and unique code to access the conference call seamlessly. While not required, it is recommended that those wishing to participate register 10 minutes prior to the conference call to ensure a more efficient registration process.

For those unable to attend the live event, a webcast recording will be available on the company website, https://investors.southside.com, for at least 30 days, beginning approximately two hours following the conference call.

Non-GAAP Financial Measures

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

Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE). Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe this measure to be the preferred industry measurement of net interest income and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

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

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

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

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

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $7.45 billion in assets as of September 30, 2022, that owns 100% of Southside Bank. Southside Bank currently has 56 branches in Texas and operates a network of 75 ATMs/ITMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at https://investors.southside.com. Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data.  To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website. Questions or comments may be directed to Julie Shamburger at (903) 531-7134, or julie.shamburger@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this press release and in other written materials, documents and oral statements issued by or on behalf of the Company may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “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 of the effect of our expansion, benefits of the Share Repurchase Plan, trends in asset quality, capital, liquidity, the Company’s ability to sell nonperforming assets, expense reductions, planned operational efficiencies and earnings from growth and certain market risk disclosures, including the impact of interest rates, tax reform, inflation, the impacts related to or resulting from Russia’s invasion of Ukraine 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. Accordingly, our results could materially differ from those that have been estimated. The most significant factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the ongoing impact of higher inflation levels, higher interest rates and general economic and recessionary concerns, all of which could impact economic growth and could cause a reduction in financial transactions and business activities, including decreased deposits and reduced loan originations, our ability to manage liquidity in a rapidly changing and unpredictable market, supply chain disruptions, labor shortages and additional interest rate increases by the Federal Reserve.

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, 2021, under “Part I – Item 1. Forward Looking Information” and in the Company’s other filings with the Securities and Exchange Commission. The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

Southside Bancshares, Inc.

Consolidated Financial Summary (Unaudited)

(Dollars in thousands)

  As of
    2022       2021  
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
ASSETS                  
Cash and due from banks $ 110,620     $ 111,099     $ 90,399     $ 91,120     $ 83,346  
Interest earning deposits   3,476       12,910       72,158       110,633       3,787  
Federal funds sold   81,031       48,280       24,550              
Securities available for sale, at estimated fair value   1,424,562       1,733,354       2,065,984       2,764,325       2,753,104  
Securities held to maturity, at net carrying value   1,151,205       1,083,672       474,319       90,780       92,479  
Total securities   2,575,767       2,817,026       2,540,303       2,855,105       2,845,583  
Federal Home Loan Bank stock, at cost   12,887       13,726       3,757       14,375       27,248  
Loans held for sale   421       815       1,576       1,684       1,131  
Loans   4,063,495       3,963,041       3,800,916       3,645,162       3,647,585  
Less: Allowance for loan losses   (36,506 )     (35,449 )     (35,524 )     (35,273 )     (38,022 )
Net loans   4,026,989       3,927,592       3,765,392       3,609,889       3,609,563  
Premises & equipment, net   142,653       142,772       142,880       142,509       142,736  
Goodwill   201,116       201,116       201,116       201,116       201,116  
Other intangible assets, net   5,137       5,687       6,273       6,895       7,553  
Bank owned life insurance   133,394       132,675       131,923       131,232       130,522  
Other assets   160,256       192,363       138,788       95,044       83,106  
Total assets $ 7,453,747     $ 7,606,061     $ 7,119,115     $ 7,259,602     $ 7,135,691  
                   
LIABILITIES AND SHAREHOLDERS’ EQUITY                  
Noninterest bearing deposits $ 1,759,959     $ 1,735,488     $ 1,630,056     $ 1,644,775     $ 1,596,781  
Interest bearing deposits   4,421,200       4,512,921       4,440,343       4,077,552       3,734,874  
Total deposits   6,181,159       6,248,409       6,070,399       5,722,327       5,331,655  
Other borrowings and Federal Home Loan Bank borrowings   318,252       212,179       34,067       367,257       679,928  
Subordinated notes, net of unamortized debt

issuance costs
  98,639       98,604       98,569       98,534       98,500  
Trust preferred subordinated debentures, net of unamortized

debt issuance costs
  60,264       60,262       60,261       60,260       60,259  
Other liabilities   87,797       254,825       71,578       99,052       87,483  
Total liabilities   6,746,111       6,874,279       6,334,874       6,347,430       6,257,825  
Shareholders’ equity   707,636       731,782       784,241       912,172       877,866  
Total liabilities and shareholders’ equity $ 7,453,747     $ 7,606,061     $ 7,119,115     $ 7,259,602     $ 7,135,691  
                                       

Southside Bancshares, Inc.

Consolidated Financial Highlights (Unaudited)

(Dollars and shares in thousands, except per share data)

  Three Months Ended
    2022       2021  
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,


Income Statement:
                 
Total interest income $ 66,880     $ 57,100     $ 53,873     $ 54,760     $ 55,076  
Total interest expense   11,365       6,022       4,967       5,359       6,870  
Net interest income   55,515       51,078       48,906       49,401       48,206  
Provision for (reversal of) credit losses   1,494       (633 )     294       (3,421 )     (5,071 )
Net interest income after provision for (reversal of) credit losses   54,021       51,711       48,612       52,822       53,277  
Noninterest income                  
Deposit services   6,241       6,496       6,628       6,855       6,779  
Net gain (loss) on sale of securities available for sale   (99 )     (2,177 )     (1,543 )     463       1,381  
Gain on sale of loans   109       208       178       356       299  
Trust fees   1,407       1,520       1,494       1,586       1,494  
Bank owned life insurance   720       720       691       710       637  
Brokerage services   701       1,098       809       907       846  
Other   1,190       1,232       2,468       1,134       1,333  
  Total noninterest income   10,269       9,097       10,725       12,011       12,769  

Noninterest expense
                 
Salaries and employee benefits   21,368       20,329       19,969       20,067       19,777  
Net occupancy   3,847       3,654       3,656       3,541       3,532  
Advertising, travel & entertainment   789       716       737       876       579  
ATM expense   317       356       281       345       311  
Professional fees   1,412       1,147       927       849       1,135  
Software and data processing   1,736       1,739       1,631       1,454       1,503  
Communications   497       509       503       544       552  
FDIC insurance   485       477       472       464       454  
Amortization of intangibles   550       586       622       658       695  
Loss on redemption of subordinated notes                           1,118  
Other   2,463       2,593       2,397       2,536       2,107  
  Total noninterest expense   33,464       32,106       31,195       31,334       31,763  
Income before income tax expense   30,826       28,702       28,142       33,499       34,283  
Income tax expense   3,875       3,297       3,146       4,812       4,977  
Net income $ 26,951     $ 25,405     $ 24,996     $ 28,687     $ 29,306  
Common Share Data:      
Weighted-average basic shares outstanding   32,112       32,119       32,357       32,311       32,465  
Weighted-average diluted shares outstanding   32,221       32,251       32,537       32,487       32,556  
Common shares outstanding end of period   32,127       32,108       32,294       32,352       32,273  
Earnings per common share                  
Basic $ 0.84     $ 0.79     $ 0.77     $ 0.89     $ 0.90  
Diluted   0.84       0.79       0.77       0.88       0.90  
Book value per common share   22.03       22.79       24.28       28.20       27.20  
Tangible book value per common share (1)   15.61       16.35       17.86       21.77       20.74  
Cash dividends paid per common share   0.34       0.34       0.34       0.39       0.33  
                     
Selected Performance Ratios:                  
Return on average assets   1.43 %     1.42 %     1.40 %     1.57 %     1.61 %
Return on average shareholders’ equity   14.23       13.33       11.42       12.67       12.89  
Return on average tangible common equity (1)   19.94       18.62       15.20       16.80       17.10  
Average yield on earning assets (FTE) (1)   4.00       3.66       3.53       3.55       3.59  
Average rate on interest bearing liabilities   0.92       0.52       0.44       0.46       0.59  
Net interest margin (FTE) (1)   3.36       3.30       3.22       3.23       3.16  
Net interest spread (FTE) (1)   3.08       3.14       3.09       3.09       3.00  
Average earning assets to average interest bearing liabilities   142.83       144.54       141.93       141.21       138.86  
Noninterest expense to average total assets   1.77       1.79       1.75       1.72       1.75  
Efficiency ratio (FTE) (1)   47.42       47.74       48.15       47.61       47.92  
                                       

(1) Refer to “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Southside Bancshares, Inc.

Consolidated Financial Highlights (Unaudited)

(Dollars in thousands)

  Three Months Ended
    2022       2021  
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
Nonperforming Assets: $ 11,717     $ 11,815     $ 11,455     $ 11,609     $ 12,424  
Nonaccrual loans   3,039       3,119       2,357       2,536       3,013  
Accruing loans past due more than 90 days                            
Troubled debt restructured loans   8,481       8,568       9,098       9,073       9,371  
Other real estate owned   162       128                   25  
Repossessed assets   35                         15  
                   
Asset Quality Ratios:                  
Ratio of nonaccruing loans to:                  
Total loans   0.07 %     0.08 %     0.06 %     0.07 %     0.08 %
Ratio of nonperforming assets to:                  
Total assets   0.16       0.16       0.16       0.16       0.17  
Total loans   0.29       0.30       0.30       0.32       0.34  
Total loans and OREO   0.29       0.30       0.30       0.32       0.34  
Total loans, excluding PPP loans, and OREO   0.29       0.30       0.30       0.32       0.35  
Ratio of allowance for loan losses to:                  
Nonaccruing loans   1,201.25       1,136.55       1,507.17       1,390.89       1,261.93  
Nonperforming assets   311.56       300.03       310.12       303.84       306.04  
Total loans   0.90       0.89       0.93       0.97       1.04  
Total loans, excluding PPP loans   0.90       0.90       0.94       0.98       1.06  
Net charge-offs (recoveries) to average loans outstanding   0.02                         0.05  
                   
Capital Ratios:                  
Shareholders’ equity to total assets   9.49       9.62       11.02       12.57       12.30  
Common equity tier 1 capital   12.98       12.83       13.67       14.17       14.07  
Tier 1 risk-based capital   14.07       13.94       14.86       15.43       15.35  
Total risk-based capital   16.50       16.38       17.50       18.15       18.18  
Tier 1 leverage capital   10.09       10.34       10.39       10.33       10.14  
Period end tangible equity to period end tangible assets (1)   6.92       7.10       8.35       9.99       9.66  
Average shareholders’ equity to average total assets   10.02       10.64       12.28       12.42       12.51  
                                       

(1) Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

 Southside Bancshares, Inc.

Consolidated Financial Highlights (Unaudited)

(Dollars in thousands)

  Three Months Ended
    2022       2021  
Loan Portfolio Composition Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
Real Estate Loans:                  
Construction $ 554,345     $ 520,484     $ 490,166     $ 447,860     $ 422,095  
1-4 Family Residential   646,692       640,706       647,837       651,140       660,689  
Commercial   1,901,921       1,834,734       1,722,577       1,598,172       1,605,132  
Commercial Loans   433,538       428,974       401,144       418,998       443,708  
Municipal Loans   449,219       457,239       455,155       443,078       427,259  
Loans to Individuals   77,780       80,904       84,037       85,914       88,702  
Total Loans $ 4,063,495     $ 3,963,041     $ 3,800,916     $ 3,645,162     $ 3,647,585  
                   
Summary of Changes in Allowances:                  
Allowance for Loan Losses                  
Balance at beginning of period $ 35,449     $ 35,524     $ 35,273     $ 38,022     $ 42,913  
Loans charged-off   (686 )     (479 )     (555 )     (489 )     (940 )
Recoveries of loans charged-off   449       516       540       455       437  
Net loans (charged-off) recovered   (237 )     37       (15 )     (34 )     (503 )
Provision for (reversal of) loan losses   1,294       (112 )     266       (2,715 )     (4,388 )
Balance at end of period $ 36,506     $ 35,449     $ 35,524     $ 35,273     $ 38,022  
                   
Allowance for Off-Balance-Sheet Credit Exposures                  
Balance at beginning of period $ 1,891     $ 2,412     $ 2,384     $ 3,090     $ 3,773  
Provision for (reversal of) off-balance-sheet credit exposures   200       (521 )     28       (706 )     (683 )
Balance at end of period $ 2,091     $ 1,891     $ 2,412     $ 2,384     $ 3,090  
Total Allowance for Credit Losses $ 38,597     $ 37,340     $ 37,936     $ 37,657     $ 41,112  
                                       

 Southside Bancshares, Inc.

Consolidated Financial Highlights (Unaudited)

(Dollars in thousands)

  Nine Months Ended
  September 30,
    2022       2021  
Income Statement:      
Total interest income $ 177,853     $ 161,227  
Total interest expense   22,354       21,071  
Net interest income   155,499       140,156  
Provision for (reversal of) credit losses   1,155       (13,543 )
Net interest income after provision for (reversal of) credit losses   154,344       153,699  
Noninterest income      
  Deposit services   19,365       19,513  
  Net gain on sale of securities available for sale   (3,819 )     3,399  
  Gain on sale of loans   495       1,285  
  Trust fees   4,421       4,373  
  Bank owned life insurance   2,131       1,908  
  Brokerage services   2,608       2,476  
  Other   4,890       4,371  
  Total noninterest income   30,091       37,325  
Noninterest expense      
  Salaries and employee benefits   61,666       59,825  
  Net occupancy   11,157       10,698  
  Advertising, travel & entertainment   2,242       1,491  
  ATM expense   954       821  
  Professional fees   3,486       3,166  
  Software and data processing   5,106       4,221  
  Communications   1,509       1,689  
  FDIC insurance   1,434       1,343  
  Amortization of intangibles   1,758       2,191  
  Loss on redemption of subordinated notes         1,118  
  Other   7,453       7,133  
  Total noninterest expense   96,765       93,696  
Income before income tax expense   87,670       97,328  
Income tax expense   10,318       12,614  
Net income $ 77,352     $ 84,714  
       
Common Share Data:      
Weighted-average basic shares outstanding   32,195       32,641  
Weighted-average diluted shares outstanding   32,341       32,759  
Common shares outstanding end of period   32,127       32,273  
Earnings per common share      
  Basic $ 2.40     $ 2.60  
  Diluted   2.39       2.59  
Book value per common share   22.03       27.20  
Tangible book value per common share (1)   15.61       20.74  
Cash dividends paid per common share   1.02       0.98  
         
Selected Performance Ratios:      
Return on average assets   1.42 %     1.60 %
Return on average shareholders’ equity   12.92       12.80  
Return on average tangible common equity (1)   17.74       17.12  
Average yield on earning assets (FTE) (1)   3.74       3.58  
Average rate on interest bearing liabilities   0.63       0.61  
Net interest margin (FTE) (1)   3.29       3.14  
Net interest spread (FTE) (1)   3.11       2.97  
Average earning assets to average interest bearing liabilities   143.10       137.45  
Noninterest expense to average total assets   1.77       1.77  
Efficiency ratio (FTE) (1)   47.76       49.53  
               

(1) Refer to “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

 Southside Bancshares, Inc.

Consolidated Financial Highlights (Unaudited)

(Dollars in thousands)

  Nine Months Ended
  September 30,
    2022       2021  
Nonperforming Assets: $ 11,717     $ 12,424  
Nonaccrual loans   3,039       3,013  
Accruing loans past due more than 90 days          
Troubled debt restructured loans   8,481       9,371  
Other real estate owned   162       25  
Repossessed assets   35       15  
       
Asset Quality Ratios:      
Ratio of nonaccruing loans to:      
Total loans   0.07 %     0.08 %
Ratio of nonperforming assets to:      
Total assets   0.16       0.17  
Total loans   0.29       0.34  
Total loans and OREO   0.29       0.34  
Total loans, excluding PPP loans, and OREO   0.29       0.35  
Ratio of allowance for loan losses to:      
Nonaccruing loans   1,201.25       1,261.93  
Nonperforming assets   311.56       306.04  
Total loans   0.90       1.04  
Total loans, excluding PPP loans   0.90       1.06  
Net charge-offs (recoveries) to average loans outstanding   0.01       0.03  
       
Capital Ratios:      
Shareholders’ equity to total assets   9.49       12.30  
Common equity tier 1 capital   12.98       14.07  
Tier 1 risk-based capital   14.07       15.35  
Total risk-based capital   16.50       18.18  
Tier 1 leverage capital   10.09       10.14  
Period end tangible equity to period end tangible assets (1)   6.92       9.66  
Average shareholders’ equity to average total assets   10.97       12.48  
               

(1) Refer to the “Non-GAAP Reconciliation” at the end of the financial statement tables in this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Southside Bancshares, Inc.

Consolidated Financial Highlights (Unaudited)

(Dollars in thousands)

  Nine Months Ended
  September 30,
Loan Portfolio Composition   2022       2021  
Real Estate Loans:      
Construction $ 554,345     $ 422,095  
1-4 Family Residential   646,692       660,689  
Commercial   1,901,921       1,605,132  
Commercial Loans   433,538       443,708  
Municipal Loans   449,219       427,259  
Loans to Individuals   77,780       88,702  
Total Loans $ 4,063,495     $ 3,647,585  
       
Summary of Changes in Allowances:      
Allowance for Loan Losses      
Balance at beginning of period $ 35,273     $ 49,006  
Loans charged-off   (1,720 )     (2,262 )
Recoveries of loans charged-off   1,505       1,525  
Net loans (charged-off) recovered   (215 )     (737 )
Provision for (reversal of) loan losses   1,448       (10,247 )
Balance at end of period $ 36,506     $ 38,022  
       
Allowance for Off-Balance-Sheet Credit Exposures      
Balance at beginning of period $ 2,384     $ 6,386  
Provision for (reversal of) off-balance-sheet credit exposures   (293 )     (3,296 )
Balance at end of period $ 2,091     $ 3,090  
Total Allowance for Credit Losses $ 38,597     $ 41,112  
               

Southside Bancshares, Inc.

Average Balances and Average Yields and Rates (Annualized) (Unaudited)

(Dollars in thousands)

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

    Three Months Ended
    September 30, 2022   June 30, 2022
    Average Balance   Interest   Average Yield/Rate   Average Balance   Interest   Average Yield/Rate
ASSETS                      
Loans (1) $ 4,012,547     $ 45,992   4.55 %   $ 3,847,614     $ 39,088   4.07 %
Loans held for sale   606       7   4.58 %     1,776       18   4.07 %
Securities:                      
  Taxable investment securities (2)   626,136       4,896   3.10 %     617,603       4,632   3.01 %
  Tax-exempt investment securities (2)   1,750,952       14,455   3.28 %     1,653,871       13,599   3.30 %
  Mortgage-backed and related securities (2)   520,501       4,770   3.64 %     417,057       3,238   3.11 %
  Total securities   2,897,589       24,121   3.30 %     2,688,531       21,469   3.20 %
Federal Home Loan Bank stock, at cost, and equity investments   24,013       101   1.67 %     17,663       77   1.75 %
Interest earning deposits   18,664       105   2.23 %     77,894       125   0.64 %
Federal funds sold   46,106       269   2.31 %     37,343       79   0.85 %
  Total earning assets   6,999,525       70,595   4.00 %     6,670,821       60,856   3.66 %
Cash and due from banks   102,840               100,231          
Accrued interest and other assets   433,532               446,136          
  Less:  Allowance for loan losses   (35,706 )             (35,895 )        
  Total assets $ 7,500,191             $ 7,181,293          

LIABILITIES AND SHAREHOLDERS’ EQUITY
                     
Savings accounts $ 685,947       481   0.28 %   $ 670,187       326   0.20 %
Certificates of deposits   588,212       1,452   0.98 %     518,104       578   0.45 %
Interest bearing demand accounts   3,164,961       5,954   0.75 %     3,175,385       3,360   0.42 %
  Total interest bearing deposits   4,439,120       7,887   0.70 %     4,363,676       4,264   0.39 %
Federal Home Loan Bank borrowings   173,838       1,078   2.46 %     55,990       224   1.60 %
Subordinated notes, net of unamortized debt issuance costs   98,621       1,004   4.04 %     98,586       1,000   4.07 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs   60,263       669   4.40 %     60,262       471   3.13 %
Repurchase agreements   30,530       54   0.70 %     30,055       18   0.24 %
Other borrowings   98,174       673   2.72 %     6,549       45   2.76 %
  Total interest bearing liabilities   4,900,546       11,365   0.92 %     4,615,118       6,022   0.52 %
Noninterest bearing deposits   1,746,245               1,702,985          
Accrued expenses and other liabilities   101,881               98,870          
  Total liabilities   6,748,672               6,416,973          
Shareholders’ equity   751,519               764,320          
  Total liabilities and shareholders’ equity $ 7,500,191             $ 7,181,293          
Net interest income (FTE)     $ 59,230           $ 54,834    
Net interest margin (FTE)         3.36 %           3.30 %
Net interest spread (FTE)         3.08 %           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.

Note: As of September 30, 2022 and June 30, 2022, loans totaling $3.0 million and $3.1 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

 Southside Bancshares, Inc.

Average Balances and Average Yields and Rates (Annualized) (Unaudited)

(Dollars in thousands)

  Three Months Ended
  March 31, 2022   December 31, 2021
    Average

Balance
  Interest   Average Yield/Rate   Average

Balance
  Interest   Average Yield/Rate
ASSETS                      
Loans (1) $ 3,703,980     $ 35,625   3.90 %   $ 3,668,767     $ 36,740   3.97 %
Loans held for sale   928       8   3.50 %     1,980       11   2.20 %
Securities:                      
  Taxable investment securities (2)   644,706       4,608   2.90 %     590,104       4,215   2.83 %
  Tax-exempt investment securities (2)   1,563,185       12,683   3.29 %     1,508,196       12,699   3.34 %
  Mortgage-backed and related securities (2)   566,941       4,017   2.87 %     650,685       4,394   2.68 %
  Total securities   2,774,832       21,308   3.11 %     2,748,985       21,308   3.08 %
Federal Home Loan Bank stock, at cost, and equity investments   20,677       113   2.22 %     38,832       175   1.79 %
Interest earning deposits   44,642       24   0.22 %     43,841       22   0.20 %
Federal funds sold   8,651       4   0.19 %              
  Total earning assets   6,553,710       57,082   3.53 %     6,502,405       58,256   3.55 %
Cash and due from banks   107,144               103,126          
Accrued interest and other assets   607,235               662,654          
  Less:  Allowance for loan losses   (35,636 )             (38,317 )        
  Total assets $ 7,232,453             $ 7,229,868          
LIABILITIES AND SHAREHOLDERS’ EQUITY                      
Savings accounts $ 652,394       273   0.17 %   $ 624,377       264   0.17 %
Certificates of deposit   563,599       594   0.43 %     632,150       681   0.43 %
Interest bearing demand accounts   3,097,966       2,370   0.31 %     2,558,289       1,289   0.20 %
  Total interest bearing deposits   4,313,959       3,237   0.30 %     3,814,816       2,234   0.23 %
Federal Home Loan Bank borrowings   122,783       366   1.21 %     609,310       1,758   1.14 %
Subordinated notes, net of unamortized debt issuance costs   98,552       998   4.11 %     98,517       1,011   4.07 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs   60,261       356   2.40 %     60,259       345   2.27 %
Repurchase agreements   21,494       10   0.19 %     21,874       11   0.20 %
Other borrowings   467                        
  Total interest bearing liabilities   4,617,516       4,967   0.44 %     4,604,776       5,359   0.46 %
Noninterest bearing deposits   1,642,973               1,637,914          
Accrued expenses and other liabilities   84,009               88,982          
  Total liabilities   6,344,498               6,331,672          
Shareholders’ equity   887,955               898,196          
  Total liabilities and shareholders’ equity $ 7,232,453             $ 7,229,868          
Net interest income (FTE)     $ 52,115           $ 52,897    
Net interest margin (FTE)         3.22 %           3.23 %
Net interest spread (FTE)         3.09 %           3.09 %
                             

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of March 31, 2022 and December 31, 2021, loans totaling $2.4 million and $2.5 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Southside Bancshares, Inc.

Average Balances and Average Yields and Rates (Annualized) (Unaudited)

(Dollars in thousands)

    Three Months Ended
    September 30, 2021
    Average

Balance
  Interest   Average Yield/Rate
ASSETS          
Loans (1) $ 3,662,496     $ 37,744   4.09 %
Loans held for sale   1,640       12   2.90 %
Securities:          
  Taxable investment securities (2)   532,679       3,853   2.87 %
  Tax-exempt investment securities (2)   1,453,275       12,315   3.36 %
  Mortgage-backed and related securities (2)   738,287       4,405   2.37 %
  Total securities   2,724,241       20,573   3.00 %
Federal Home Loan Bank stock, at cost, and equity investments   39,786       111   1.11 %
Interest earning deposits   39,382       24   0.24 %
  Total earning assets   6,467,545       58,464   3.59 %
Cash and due from banks   99,113          
Accrued interest and other assets   684,917          
  Less:  Allowance for loan losses   (43,052 )        
  Total assets $ 7,208,523          
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Savings accounts $ 598,118       249   0.17 %
Certificates of deposit   629,718       789   0.50 %
Interest bearing demand accounts   2,496,037       1,196   0.19 %
  Total interest bearing deposits   3,723,873       2,234   0.24 %
Federal Home Loan Bank borrowings   656,474       1,865   1.13 %
Subordinated notes, net of unamortized debt issuance costs   195,204       2,417   4.91 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs   60,258       345   2.27 %
Repurchase agreements   21,634       9   0.17 %
  Total interest bearing liabilities   4,657,443       6,870   0.59 %
Noninterest bearing deposits   1,551,298          
Accrued expenses and other liabilities   97,954          
  Total liabilities   6,306,695          
Shareholders’ equity   901,828          
  Total liabilities and shareholders’ equity $ 7,208,523          
Net interest income (FTE)     $ 51,594    
Net interest margin (FTE)         3.16 %
Net interest spread (FTE)         3.00 %
             

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of September 30, 2021, loans totaling $3.0 million were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Southside Bancshares, Inc.

Average Balances and Average Yields and Rates (Annualized) (Unaudited)

(Dollars in thousands)

    Nine Months Ended
    September 30, 2022   September 30, 2021
    Average

Balance
  Interest   Average Yield/Rate   Average

Balance
  Interest   Average

Yield/Rate
ASSETS                      
Loans (1) $ 3,855,844     $ 120,705   4.19 %   $ 3,667,941     $ 110,927   4.04 %
Loans held for sale   1,102       33   4.00 %     2,092       45   2.88 %
Securities:                      
  Taxable investment securities (2)   629,413       14,136   3.00 %     409,251       9,097   2.97 %
  Tax-exempt investment securities (2)   1,656,691       40,737   3.29 %     1,373,206       35,076   3.42 %
  Mortgage-backed and related securities (2)   501,330       12,025   3.21 %     841,361       15,140   2.41 %
  Total securities   2,787,434       66,898   3.21 %     2,623,818       59,313   3.02 %
Federal Home Loan Bank stock, at cost, and equity investments   20,796       291   1.87 %     37,116       355   1.28 %
Interest earning deposits   46,972       254   0.72 %     37,939       56   0.20 %
Federal funds sold   30,837       352   1.53 %              
  Total earning assets   6,742,985       188,533   3.74 %     6,368,906       170,696   3.58 %
Cash and due from banks   103,390               92,206          
Accrued interest and other assets   492,173               672,558          
  Less:  Allowance for loan losses   (35,746 )             (44,664 )        
  Total assets $ 7,302,802             $ 7,089,006          
LIABILITIES AND SHAREHOLDERS’ EQUITY                      
Savings accounts $ 669,632       1,080   0.22 %   $ 562,699       689   0.16 %
Certificates of deposit   556,728       2,624   0.63 %     674,452       2,954   0.59 %
Interest bearing demand accounts   3,146,350       11,684   0.50 %     2,433,120       3,527   0.19 %
  Total interest bearing deposits   4,372,710       15,388   0.47 %     3,670,271       7,170   0.26 %
Federal Home Loan Bank borrowings   117,724       1,668   1.89 %     684,280       5,590   1.09 %
Subordinated notes, net of unamortized debt issuance costs   98,587       3,002   4.07 %     196,572       7,235   4.92 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs   60,262       1,496   3.32 %     60,257       1,045   2.32 %
Repurchase agreements   27,393       82   0.40 %     22,387       31   0.19 %
Other borrowings   35,421       718   2.71 %              
  Total interest bearing liabilities   4,712,097       22,354   0.63 %     4,633,767       21,071   0.61 %
Noninterest bearing deposits   1,697,779               1,475,828          
Accrued expenses and other liabilities   92,161               94,536          
  Total liabilities   6,502,037               6,204,131          
Shareholders’ equity   800,765               884,875          
  Total liabilities and shareholders’ equity $ 7,302,802             $ 7,089,006          
Net interest income (FTE)     $ 166,179           $ 149,625    
Net interest margin (FTE)         3.29 %           3.14 %
Net interest spread (FTE)         3.11 %           2.97 %
                             

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Note: As of September 30, 2022 and 2021, loans totaling $3.0 million and $3.0 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Southside Bancshares, Inc.

Non-GAAP Reconciliation (Unaudited)

(Dollars and shares in thousands, except per share data)

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

  Three Months Ended   Nine Months Ended
    2022       2021       2022       2021  
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,   Sep 30,   Sep 30,
Reconciliation of return on average common equity to return on average tangible common equity:                          
Net income $ 26,951     $ 25,405     $ 24,996     $ 28,687     $ 29,306     $ 77,352     $ 84,714  
After-tax amortization expense   435       463       491       520       549       1,389       1,731  
Adjusted net income available to common shareholders $ 27,386     $ 25,868     $ 25,487     $ 29,207     $ 29,855     $ 78,741     $ 86,445  
                           
Average shareholders’ equity $ 751,519     $ 764,320     $ 887,955     $ 898,196     $ 901,828     $ 800,765     $ 884,875  
Less: Average intangibles for the period   (206,591 )     (207,163 )     (207,774 )     (208,412 )     (209,097 )     (207,172 )     (209,817 )
Average tangible shareholders’ equity $ 544,928     $ 557,157     $ 680,181     $ 689,784     $ 692,731     $ 593,593     $ 675,058  
                           
Return on average tangible common equity   19.94 %     18.62 %     15.20 %     16.80 %     17.10 %     17.74 %     17.12 %
                           
Reconciliation of book value per share to tangible book value per share:                          
Common equity at end of period $ 707,636     $ 731,782     $ 784,241     $ 912,172     $ 877,866     $ 707,636     $ 877,866  
Less: Intangible assets at end of period   (206,253 )     (206,803 )     (207,389 )     (208,011 )     (208,669 )     (206,253 )     (208,669 )
Tangible common shareholders’ equity at end of period $ 501,383     $ 524,979     $ 576,852     $ 704,161     $ 669,197     $ 501,383     $ 669,197  
                           
Total assets at end of period $ 7,453,747     $ 7,606,061     $ 7,119,115     $ 7,259,602     $ 7,135,691     $ 7,453,747     $ 7,135,691  
Less: Intangible assets at end of period   (206,253 )     (206,803 )     (207,389 )     (208,011 )     (208,669 )     (206,253 )     (208,669 )
Tangible assets at end of period $ 7,247,494     $ 7,399,258     $ 6,911,726     $ 7,051,591     $ 6,927,022     $ 7,247,494     $ 6,927,022  
                           
Period end tangible equity to period end tangible assets   6.92 %     7.10 %     8.35 %     9.99 %     9.66 %     6.92 %     9.66 %
                           
Common shares outstanding end of period   32,127       32,108       32,294       32,352       32,273       32,127       32,273  
Tangible book value per common share $ 15.61     $ 16.35     $ 17.86     $ 21.77     $ 20.74     $ 15.61     $ 20.74  
                           
Reconciliation of efficiency ratio to efficiency ratio (FTE), net interest margin to net interest margin (FTE) and net interest spread to net interest spread (FTE):                          
Net interest income (GAAP) $ 55,515     $ 51,078     $ 48,906     $ 49,401     $ 48,206     $ 155,499     $ 140,156  
Tax-equivalent adjustments:                          
Loans   742       762       745       740       722       2,249       2,180  
Tax-exempt investment securities   2,973       2,994       2,464       2,756       2,666       8,431       7,289  
Net interest income (FTE) (1)   59,230       54,834       52,115       52,897       51,594       166,179       149,625  
Noninterest income   10,269       9,097       10,725       12,011       12,769       30,091       37,325  
Nonrecurring income (2)   99       2,177       706       (463 )     (1,381 )     2,982       (3,399 )
Total revenue $ 69,598     $ 66,108     $ 63,546     $ 64,445     $ 62,982     $ 199,252     $ 183,551  
                           
Noninterest expense $ 33,464     $ 32,106     $ 31,195     $ 31,334     $ 31,763     $ 96,765     $ 93,696  
Pre-tax amortization expense   (550 )     (586 )     (622 )     (658 )     (695 )     (1,758 )     (2,191 )
Nonrecurring expense (3)   87       39       22       8       (888 )     148       (588 )
Adjusted noninterest expense $ 33,001     $ 31,559     $ 30,595     $ 30,684     $ 30,180     $ 95,155     $ 90,917  
                           
Efficiency ratio   50.09 %     50.61 %     50.71 %     50.34 %     50.64 %     50.46 %     52.23 %
Efficiency ratio (FTE) (1)   47.42 %     47.74 %     48.15 %     47.61 %     47.92 %     47.76 %     49.53 %
                           
Average earning assets $ 6,999,525     $ 6,670,821     $ 6,553,710     $ 6,502,405     $ 6,467,545     $ 6,742,985     $ 6,368,906  
                           
Net interest margin   3.15 %     3.07 %     3.03 %     3.01 %     2.96 %     3.08 %     2.94 %
Net interest margin (FTE) (1)   3.36 %     3.30 %     3.22 %     3.23 %     3.16 %     3.29 %     3.14 %
                           
Net interest spread   2.87 %     2.91 %     2.89 %     2.88 %     2.79 %     2.90 %     2.77 %
Net interest spread (FTE) (1)   3.08 %     3.14 %     3.09 %     3.09 %     3.00 %     3.11 %     2.97 %
                                                       

(1) These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.

(2) These adjustments may include net gain or loss on sale of securities available for sale and other investment income or loss in the periods where applicable.

(3) These adjustments may include loss on redemption of subordinated notes, foreclosure expenses and branch closure expenses, in the periods where applicable.

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