TYLER, Texas, Feb. 1 /PRNewswire-FirstCall/ -- Southside Bancshares, Inc. ("Southside" or the "Company") today reported its financial results for the three months and year ended December 31, 2007.
Southside reported record net income of $16.7 million for the year ended December 31, 2007, an increase of $1.7 million, or 11.2%, when compared to $15.0 million for the same period in 2006.
Net income for the three months ended December 31, 2007, increased $655,000 to $4.8 million from $4.2 million, or 15.7%, for the same period in 2006.
Earnings per fully diluted share increased $0.12, or 10.7%, to $1.24 for the year ended December 31, 2007, when compared to $1.12 for the same period in 2006. Earnings per fully diluted share increased $0.05, or 16.1%, to $0.36 for the three months ended December 31, 2007, compared to $0.31 for the same period in 2006.
The return on average shareholders' equity for the twelve months ended December 31, 2007 increased to 14.05%, compared to 13.48%, for the same period in 2006. The annual return on average assets increased to 0.87%, for the twelve months ended December 31, 2007, compared to 0.81%, for the same period in 2006.
"2007 was a remarkable year," stated B. G. Hartley, Chairman and Chief Executive Officer. "Our well established business plan, anchored by well quantified credit standards, conservative balance sheet management and the retention of a seasoned management team, allowed Southside to distinguish itself in one of the most challenging environments for financial institutions in several decades. Despite the current uncertainty, your company, during 2007 acquired Fort Worth National Bancshares, successfully issued trust preferred securities, opened two denovo branches, started Southside Financial Group, experienced solid growth in its core business and finished with record annual net income. We believe our current strength gives us the opportunity to expand and execute our business model in 2008 and beyond. The resulting flexibility at this time of tremendous volatility in the financial markets appears to have become a very precious commodity."
"Unlike many financial institutions, we deliberately chose to forego modest amounts of income during prior years when credit spreads were unacceptable to Southside. Given the dramatic shift in the credit markets we are now in a position to reevaluate lending strategies consistent with this current environment using our time tested, quantifiable credit standards. In addition we may also evaluate other strategic options including but not limited to, continued acquisitions, expanding the denovo branch program and regional lending initiative which may include growing our Texas footprint as well as a further leveraging of the balance sheet."
The following are highlights during 2007 that are worthy of special mention:
Southside completed the acquisition of Fort Worth National Bancshares during October, dovetailing nicely into our expansion to the west of Tyler we began several years ago. This expanded our Texas footprint into the growing and dynamic markets of Fort Worth, Arlington and Austin. To finance this acquisition, we successfully completed the issuance of $35 million dollars of trust preferred securities amidst severe disruptions in the credit markets. Goodwill and recognized intangibles associated with this acquisition were $23.6 million at December 31, 2007.
During the third quarter we purchased a 50 percent interest in Southside Financial Group, LLC. ("SFG") a company engaged in purchasing existing high yield automobile loan portfolios with performance histories from lenders throughout the United States. The presence of an executive management team with extensive experience in the high yield auto market to operate this company along with our credit underwriting experience formed the basis for this partnership. Integration has so far exceeded our original timetable. Southside continues to be excited about the possibilities associated with this business.
Our regional lending initiative gained significant traction during 2007. This investment along with many of our previous branch investments, which in prior years were negatively impacting short-term earnings, are now contributing to earnings and funding today's investments.
Loan and Deposit Growth
For the three months ended December 31, 2007, total loans grew by $165.6 million, or 20.8%. Approximately $107.0 million can be attributed to the acquisition of Fort Worth National Bank. SFG purchases of existing sub-prime automobile portfolios with performance histories and at discounted prices to reflect potential credit issues were approximately $45.0 million. Therefore, organic loan growth for the three months ended December 31, 2007 was $13.6 million.
Nonperforming assets while still at a relatively low level increased $1.8 million, or 87.0% for the three months ended December 31, 2007. The ratio of non-performing assets to total assets remained below 0.20%. It is important to note that approximately $600,000 of this increase, represents nonperforming assets that were purchased during the fourth quarter at significant discounts. These assets were part of a much larger purchase of an automobile loan portfolio acquired through SFG during the fourth quarter. Nonperforming assets, not including those acquired during the fourth quarter, increased approximately $1.2 million, all of which were attributable to the SFG automobile loans.
During the three months ended December 31, 2007, deposits increased $176.2 million, or 13.0%, to $1.5 billion from $1.4 billion at September 30, 2007. Deposit growth during the quarter resulting from the Fort Worth National Bank acquisition was $109.1 million with organic deposit growth responsible for the remaining $67.1 million.
Net Interest Income
Net interest income increased $3.4 million, or 32.9% and $2.2 million, or 5.3%, to $13.6 million and $43.9 million for the three and twelve months ended December 31, 2007, when compared to $10.2 million and $ 41.7 million for the same periods in 2006. For the three months ended December 31, 2007, the net interest spread and margin increased, while for the twelve months ended December 31, 2007, the net interest margin increased and the net interest spread experienced a slight decrease. The increase in our net interest margin reflects the volume changes combined with the rate changes. The decrease in our net interest spread for the twelve months ended December 31, 2007, reflects an increase in the average short-term borrowing rates that exceeded the increase in the yields on the average earning assets. For the three months ended December 31, 2007 when compared to the same period in 2006, our net interest spread increased to 2.16%, from 1.65%, and during the same periods the net interest margin increased to 2.94% from 2.45%. For the twelve months ended December 31, 2007 when compared to the same period in 2006, our net interest margin increased to 2.64%, from 2.57%, while during the same period the net interest spread decreased slightly to 1.80% from 1.85%. Compared to the previous quarter, the net interest margin and net interest spread for the three months ended December 31, 2007 increased to 2.94% and 2.16%, respectively, from 2.52% and 1.65% for the three months ended September 30, 2007. This was due in part to an increase in the automobile portfolios purchased during the fourth quarter of 2007, which more than offset the increase in leverage at a lower net interest margin and spread and the issuance of trust preferred securities in mid August 2007 related to our acquisition of Fort Worth National Bank.
Net Income for the Three Months and Twelve Months
The increase in net income for the three and twelve months ended December 31, 2007 was primarily a result of the increase in net interest income and noninterest income partially offset by an increase in provision for loan loss and noninterest expense. Noninterest income, excluding gain on available for sale securities, increased $914,000, or 15.3%, and $2.8 million, or 12.2%, for the three and twelve months ended December 31, 2007, compared to the same periods in 2006. The increase in noninterest income was primarily the result of increases in deposit services income, trust income, and other income. Provision for loan losses increased $1.3 million, or 1,017.6%, and $1.3 million, or 117.7% for the three and twelve months ended December 31, 2007, compared to the same period in 2006 primarily as a result of the increase in loans and the investment in the automobile loan portfolios.
Noninterest expense increased $2.2 million, or 20.3%, and $2.3 million, or 5.2%, for the three and twelve months ended December 31, 2007, compared to the same periods in 2006. The increase in noninterest expense was primarily a result of the increase in salaries and employee benefits and other expense. The increase in salaries and employee benefits for the three and twelve months ended December 31, 2007 were $1.1 million, or 16.9%, and $1.1 million, or 3.8%, compared to the same periods in 2006. Due to the acquisition of Fort Worth National Bank during the fourth quarter of 2007 and Southside Financial Group in the third quarter of 2007, most noninterest expense categories experienced increases.
About Southside Bancshares, Inc.
Southside Bancshares, Inc. is a bank holding company with approximately $2.2 billion in assets that owns 100% of Southside Bank and Fort Worth National Bank. Southside Bank and Fort Worth National Bank currently have 44 banking centers in Texas and operate a network of 45 ATMs.
To learn more about Southside Bancshares, Inc., please visit our investor relations website at http://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
Forward-Looking Statements
Certain statements of other than historical fact that are contained in this document and in 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," "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 of the effect of the Company's expansion, including expectations of the costs and profitability of such expansion, trends in asset quality and earnings from growth, and certain market risk disclosures 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/A for the year ended December 31, 2006 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 At December 31, December 31, 2007 2006 (dollars in thousands) (unaudited) Selected Financial Condition Data (at end of period): Total assets $2,196,322 $1,890,976 Loans 961,230 759,147 Allowance for loan losses 9,753 7,193 Mortgage-backed and related securities: Available for sale, at estimated fair value 727,553 643,164 Held to maturity, at cost 189,965 226,162 Investment securities: Available for sale, at estimated fair value 109,928 98,952 Held to maturity, at cost 475 1,351 Federal Home Loan Bank and Federal Reserve Bank stock, at cost 19,850 25,614 Deposits 1,530,491 1,282,475 Long-term obligations 146,558 149,998 Shareholders' equity 132,328 110,604 Nonperforming assets 3,946 2,110 Nonaccrual loans 2,913 1,333 Loans 90 days past due 400 128 Restructured loans 225 220 Other real estate owned 153 351 Repossessed assets 255 78 Asset Quality Ratios: Nonaccruing loans to total loans 0.30% 0.18% Allowance for loan losses to nonaccruing loans 334.81 539.61 Allowance for loan losses to nonperforming assets 247.16 340.90 Allowance for loan losses to total loans 1.01 0.95 Nonperforming assets to total assets 0.18 0.11 Net charge-offs to average loans 0.09 0.14 Capital Ratios: Shareholders' equity to total assets 6.02 5.85 Average shareholders' equity to average total assets 6.22 5.99 LOAN PORTFOLIO COMPOSITION
The following table sets forth loan totals by category for the periods presented:
At At December 31, December 31, 2007 2006 (in thousands) (unaudited) Real Estate Loans: Construction $96,356 $39,588 1-4 Family Residential 237,888 227,354 Other 211,280 181,047 Commercial Loans 154,171 118,962 Municipal Loans 112,523 106,155 Loans to Individuals 149,012 86,041 Total Loans $961,230 $759,147 At or for the At or for the Three Months Years Ended December 31, Ended December 31, 2007 2006 2007 2006 (dollars in thousands) (dollars in thousands) (unaudited) (unaudited) Selected Operating Data: Total interest income $30,689 $25,357 $105,741 $96,952 Total interest expense 17,133 15,157 61,863 55,284 Net interest income 13,556 10,200 43,878 41,668 Provision for loan losses 1,397 125 2,351 1,080 Net interest income after provision for loan losses 12,159 10,075 41,527 40,588 Noninterest income Deposit services 4,808 4,030 17,280 15,482 Gain on securities available for sale 336 265 897 743 Gain on sale of loans 429 454 1,922 1,817 Trust income 544 481 2,106 1,711 Bank owned life insurance income 337 298 1,142 1,067 Other 761 702 3,071 2,661 Total noninterest income 7,215 6,230 26,418 23,481 Noninterest expense Salaries and employee benefits 7,717 6,601 29,361 28,275 Occupancy expense 1,262 1,179 4,881 4,777 Equipment expense 279 232 1,017 899 Advertising, travel & entertainment 579 452 1,812 1,742 ATM and debit card expense 263 256 1,006 955 Director fees 211 144 605 587 Supplies 205 133 692 637 Professional fees 304 380 1,268 1,386 Postage 194 158 662 618 Telephone and communications 223 194 800 723 Other 1,814 1,121 5,181 4,368 Total noninterest expense 13,051 10,850 47,285 44,967 Income before income tax expense 6,323 5,455 20,660 19,102 Provision for income tax expense 1,489 1,276 3,976 4,100 Net income $4,834 $4,179 $16,684 $15,002 Common share data: Weighted-average basic shares outstanding 13,119 12,939 13,057 12,874 Weighted-average diluted shares outstanding 13,467 13,418 13,445 13,370 Net income per common share Basic $0.37 $0.32 $1.28 $1.16 Diluted 0.36 0.31 1.24 1.12 Book value per common share - - 10.07 8.52 Cash dividend declared per common share 0.15 0.14 0.50 0.47 Selected Performance Ratios: Return on average assets 0.92% 0.88% 0.87% 0.81% Return on average shareholders' 15.02 14.11 14.05 13.48 Average yield on interest earning 6.44 5.84 6.10 5.74 Average yield on interest bearing 4.28 4.19 4.30 3.89 Net interest spread 2.16 1.65 1.80 1.85 Net interest margin 2.94 2.45 2.64 2.57 Average interest earnings assets to average interest 122.36 123.44 124.02 122.98 Noninterest expense to average 2.47 2.28 2.48 2.42 Efficiency ratio 60.61 63.73 64.86 66.27 AVERAGE BALANCES AND YIELDS (dollars in thousands) (unaudited) Years Ended December 31, 2007 December 31, 2006 AVG AVG AVG AVG BALANCE INTEREST YIELD BALANCE INTEREST YIELD ASSETS INTEREST EARNING ASSETS: Loans(1)(2) $809,906 $58,002 7.16% $722,252 $48,397 6.70% Loans Held For Sale 3,657 191 5.22% 4,651 246 5.29% Securities: Investment Securities (Taxable)(4) 52,171 2,580 4.95% 54,171 2,498 4.61% Investment Securities (Tax-Exempt)(3)(4) 43,486 3,065 7.05% 43,931 3,134 7.13% Mortgage-backed and Related Securities(4) 852,880 43,767 5.13% 891,015 44,401 4.98% Total Securities 948,537 49,412 5.21% 989,117 50,033 5.06% Federal Home Loan Bank and Federal Reserve Bank stock and other investments, at cost 20,179 1,193 5.91% 27,969 1,409 5.04% Interest Earning Deposits 769 41 5.33% 692 35 5.06% Federal Funds Sold 2,933 144 4.91% 1,148 57 4.97% Total Interest Earning Assets 1,785,981 108,983 6.10% 1,745,829 100,177 5.74% NONINTEREST EARNING ASSETS: Cash and Due From Banks 42,724 42,906 Bank Premises and Equipment 35,746 33,298 Other Assets 51,968 42,716 Less: Allowance for Loan Loss (7,697) (7,231) Total Assets $1,908,722 $1,857,518 LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST BEARING LIABILITIES: Savings Deposits $ 52,106 676 1.30% $50,764 645 1.27% Time Deposits 564,613 27,666 4.90% 467,174 20,516 4.39% Interest Bearing Demand Deposits 414,293 13,116 3.17% 349,375 9,529 2.73% Total Interest Bearing Deposits 1,031,012 41,458 4.02% 867,313 30,690 3.54% Short-term Interest Bearing Liabilities 278,002 13,263 4.77% 376,696 16,534 4.39% Long-term Interest Bearing Liabilities - FHLB Dallas 95,268 4,357 4.57% 154,983 6,379 4.12% Long-term Debt (5) 35,802 2,785 7.78% 20,619 1,681 8.04% Total Interest Bearing Liabilities 1,440,084 61,863 4.30% 1,419,611 55,284 3.89% NONINTEREST BEARING LIABILITIES: Demand Deposits 328,711 314,241 Other Liabilities 20,997 12,403 Total Liabilities 1,789,792 1,746,255 Minority Interest in Southside Financial Group 151 - SHAREHOLDERS' EQUITY 118,779 111,263 Total Liabilities and Shareholders' Equity $1,908,722 $1,857,518 NET INTEREST INCOME $47,120 $44,893 NET YIELD ON AVERAGE EARNING ASSETS 2.64% 2.57% NET INTEREST SPREAD 1.80% 1.85% (1) Interest on loans includes fees on loans that are not material in amount. (2) Interest income includes taxable-equivalent adjustments of $2,289 and $2,230 for the years ended December 31, 2007 and 2006, respectively. (3) Interest income includes taxable-equivalent adjustments of $953 and $995 for the years ended December 31, 2007 and 2006, 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 Southside Bancshares, Inc. 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 issued August 8, 2007 and Southside Statutory Trust V of $12.5 million of trust preferred securities issued August 10, 2007 and junior subordinated debentures issued by Fort Worth Bancshares, Inc. to Magnolia Trust Company I in connection with the issuance by Magnolia Trust I of $3.5 million of trust preferred securities, acquired by Southside Bancshares, Inc. October 10, 2007. Note: As of December 31, 2007 and 2006, loans totaling $2,913 and $1,333, 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 December 31, 2007 December 31, 2006 AVG AVG AVG AVG BALANCE INTEREST YIELD BALANCE INTEREST YIELD ASSETS INTEREST EARNING ASSETS: Loans(1)(2) $926,387 $18,065 7.74% $747,439 $12,833 6.81% Loans Held For Sale 3,063 42 5.44% 4,259 55 5.12% Securities: Investment Securities (Taxable)(4) 45,426 576 5.03% 49,146 592 4.78% Investment Securities (Tax-Exempt)(3)(4) 48,395 844 6.92% 41,372 745 7.14% Mortgage-backed and Related Securities (4) 892,567 11,688 5.20% 902,131 11,494 5.05% Total Securities 986,388 13,108 5.27% 992,649 12,831 5.13% Federal Home Loan Bank and Federal Reserve Bank stock and other investments, at cost 20,499 248 4.80% 26,490 363 5.44% Interest Earning Deposits 1,313 15 4.53% 660 11 6.61% Federal Funds Sold 5,401 64 4.70% 1,473 20 5.39% Total Interest Earning Assets 1,943,051 31,542 6.44% 1,772,970 26,113 5.84% NONINTEREST EARNING ASSETS: Cash and Due From Banks 45,471 40,185 Bank Premises and Equipment 39,819 32,938 Other Assets 75,480 46,897 Less: Allowance for Loan Loss (8,800) (7,287) Total Assets $2,095,021 $1,885,703 LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST BEARING LIABILITIES: Savings Deposits $52,937 171 1.28% $50,639 166 1.30% Time Deposits 614,920 7,611 4.91% 516,526 6,176 4.74% Interest Bearing Demand Deposits 468,353 3,695 3.13% 345,325 2,564 2.95% Total Interest Bearing Deposits 1,136,210 11,477 4.01% 912,490 8,906 3.87% Short-term Interest Bearing Liabilities 303,693 3,492 4.56% 364,624 4,298 4.68% Long-term Interest Bearing Liabilities - FHLB Dallas 88,164 1,042 4.69% 138,563 1,515 4.34% Long-term Debt(5) 59,958 1,122 7.42% 20,619 438 8.31% Total Interest Bearing Liabilities 1,588,025 17,133 4.28% 1,436,296 15,157 4.19% NONINTEREST BEARING LIABILITIES: Demand Deposits 355,289 317,794 Other Liabilities 23,634 14,112 Total Liabilities 1,966,948 1,768,202 Minority Interest in Southside Financial Group 400 - SHAREHOLDERS' EQUITY 127,673 117,501 Total Liabilities and Shareholders' Equity $2,095,021 $1,885,703 NET INTEREST INCOME $14,409 $10,956 NET YIELD ON AVERAGE EARNING ASSETS 2.94% 2.45% NET INTEREST SPREAD 2.16% 1.65% (1) Interest on loans includes fees on loans that are not material in amount. (2) Interest income includes taxable-equivalent adjustments of $584 and $520 for the three month periods ended December 31, 2007 and 2006, respectively. (3) Interest income includes taxable-equivalent adjustments of $269 and $236 for the three months ended December 31, 2007 and 2006, 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 Southside Bancshares, Inc. 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 and 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 I of $3.5 million of trust preferred securities, acquired by Southside Bancshares, Inc. October 10, 2007. Note: As of December 31, 2007 and 2006, loans totaling $2,913 and $1,333, 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.
