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Southside Bancshares, Inc. Announces Net Income for the Three and Nine Months Ended September 30, 2015

TYLER, Texas, Oct. 30, 2015 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three and nine months ended September 30, 2015.

Southside reported net income of $11.8 million for the three months ended September 30, 2015, an increase of $5.7 million, or 92.9%, when compared to $6.1 million for the same period in 2014. Net income for the nine months ended September 30, 2015 increased $7.5 million, or 30.4%, to $32.3 million when compared to $24.8 million for the same period in 2014.

Diluted earnings per common share were $0.46 and $0.31 for the three months ended September 30, 2015 and 2014, respectively, an increase of $0.15, or 48.4%. For the nine months ended September 30, 2015, diluted earnings per common share increased $0.02, or 1.6%, to $1.27 when compared to $1.25 for the same period in 2014.

The return on average shareholders’ equity for the nine months ended September 30, 2015 was 9.93%, compared to 11.92% for the same period in 2014. The return on average assets was 0.90% for the nine months ended September 30, 2015, compared to 0.97% for the same period in 2014.

“We are extremely pleased with our financial results this quarter,” stated Sam Dawson, President and Chief Executive Officer of Southside Bancshares, Inc. “During the quarter we experienced double digit annualized loan growth of 10.8% as both prior and current quarter loan commitments began to fund. Over two-thirds of this loan growth was booked in September, elevating our anticipation of increases in revenue during the fourth quarter. We are pleased to report loan production remains strong in all of our markets, especially in our Fort Worth and Austin markets. The merger related expense reductions are virtually complete, as evidenced by the linked quarter total noninterest expense decline in each of the three quarters during 2015. We recorded approximately $0.1 million, net of tax, of merger-related expense during the third quarter and approximately $3.4 million, net of tax, of merger-related expense for the nine months. Southside’s balance sheet, asset quality, liquidity and capital all remain strong, allowing for continued strong growth in our market areas.”

“With the integration of OmniAmerican basically complete, we are now focusing on additional operational efficiencies and revenue generating and cost containment opportunities. This effort was commenced earlier this year and should be complete by the summer of 2016. The anticipated results are an enhanced customer experience, operational efficiencies and an increase in net income.”

“Loans increased $59.3 million during the quarter which more than offset the payoffs in our 1-4 family residential loans and the decrease in loans to individuals resulting primarily from the continued roll off in the indirect automobile loan portfolio, which decreased by approximately $23.0 million. During the quarter, construction loans increased $46.6 million, other real estate loans increased $36.3 million and municipal loans increased $5.9 million. Based on loans committed and activity in our pipeline, we continue to anticipate healthy overall net loan growth during 2015. We are focused on executing our business plan as we continue to add value to our customers and the communities we serve.”

Loans and Deposits

For the nine months ended September 30, 2015, total loans increased by $58.0 million, when compared to December 31, 2014. During the nine months ended September 30, 2015, construction loans increased $74.5 million, other real estate loans increased $69.0 million, municipal loans increased $4.9 million, commercial loans increased $1.8 million, 1-4 family real estate loans decreased $12.5 million, and loans to individuals decreased $79.7 million primarily as a result of the decrease in the indirect automobile loan portfolio. Our oil and gas exposure in the loan portfolio remained minimal at September 30, 2015 with direct oil and gas exposure of 1.48% of the loan portfolio and total direct and indirect oil and gas exposure of 2.69% of the loan portfolio.

Nonperforming assets increased during the nine months of 2015 by $21.3 million, to $33.6 million, or 0.70% of total assets, compared to 0.26% at December 31, 2014 primarily due to the downgrade of one large commercial borrowing relationship to impaired status during the first quarter of 2015 and the restructure of a large purchase credit impaired commercial loan during the three months ended September 30, 2015.

During the nine months ended September 30, 2015, the allowance for loan losses increased $5.1 million, to $18.4 million, or 0.8% of total loans, compared to 0.6% at December 31, 2014, as a result of the additional provision associated with loan growth and impaired loans. The allowance for loan losses as a percentage of total loans decreased from the comparable period in 2014 from 1.0%, as a result of the loans acquired in connection with the OmniAmerican Bancorp, Inc. acquisition measured at fair value at the acquisition date with no carryover of the allowance for loan loss and the sale of the subprime automobile loans purchased by Southside Financial Group, Inc., both of which occurred in the second half of 2014.

During the nine months ended September 30, 2015, deposits, net of brokered deposits, decreased $87.1 million, or 2.6%, compared to December 31, 2014. During this nine-month period, public fund deposits decreased $64.0 million due to seasonal fluctuations and the demand for higher interest rates on certain deposits.

Net Interest Income for the Three Months

Net interest income increased $7.6 million, or 29.4%, to $33.3 million for the three months ended September 30, 2015, when compared to $25.7 million for the same period in 2014. The increase in net interest income was primarily the result of the increase in interest income of $8.4 million, compared to the same period in 2014, which was a result of the increase in total loans. For the three months ended September 30, 2015, our net interest spread decreased to 3.26%, compared to 3.65% for the same period in 2014. The net interest margin decreased to 3.35% for the three months ended September 30, 2015, compared to 3.80% for the same period in 2014. The net interest spread and margin each decreased as a result of the decrease in the yield on interest-earning assets, which more than offset the decrease in the yield on interest-bearing liabilities compared to the same period in 2014.

Net Interest Income for the Nine Months

Net interest income increased $18.5 million, or 22.7%, to $100.0 million for the nine months ended September 30, 2015, when compared to $81.5 million for the same period in 2014. The increase in net interest income was primarily the result of the increase in interest income of $20.4 million, compared to the same period in 2014, which was a result of the increase in total loans and total securities. For the nine months ended September 30, 2015, our net interest spread decreased to 3.32%, compared to 3.75% for the same period in 2014. The net interest margin decreased to 3.41% for the nine months ended September 30, 2015, compared to 3.89% for the same period in 2014. The net interest spread and margin each decreased as a result of the decrease in the yield on interest-earning assets, which more than offset the decrease in the yield on interest-bearing liabilities compared to the same period in 2014.

Net Income for the Three Months

Net income increased $5.7 million, or 92.9%, for the three months ended September 30, 2015, to $11.8 million when compared to the same period in 2014. The increase was primarily the result of an increase in interest income of $8.4 million and an increase in noninterest income of $4.1 million combined with a decrease in provision for loan loss of $2.6 million, which were partially offset by a $6.4 million increase in noninterest expense and a $2.2 million increase in income tax expense.

Noninterest expense increased $6.4 million, or 31.8%, for the three months ended September 30, 2015, compared to the same period in 2014, primarily due to increases in salaries and employee benefits expense, occupancy expense, ATM and debit card expense, software and data processing expense and other noninterest expense which were partially offset by a decrease in professional fees.

Net Income for the Nine Months

Net income increased $7.5 million, or 30.4%, for the nine months ended September 30, 2015, to $32.3 million when compared to the same period in 2014. The increase was primarily the result of an increase in interest income of $20.4 million and an increase in noninterest income of $11.2 million combined with a decrease in provision for loan loss of $5.3 million, which were partially offset by a $23.4 million increase in noninterest expense and a $4.1 million increase in income tax expense.

Noninterest expense increased $23.4 million, or 38.6%, for the nine months ended September 30, 2015, compared to the same period in 2014, primarily due to increases in salaries and employee benefits expense, occupancy expense, ATM and debit card expense, software and data processing expense and other noninterest expense which were partially offset by a decrease in professional fees.

Conference Call

Southside's management team will host a conference call to discuss its third quarter 2015 results on Friday, October 30, 2015 at 9:30 am CDT. The call can be accessed by dialing 877-340-9220 and by identifying the conference ID number 65900393 or by identifying “Southside Bancshares, Inc., Third Quarter 2015 Earnings Call.” To listen to call via webcast, register at www.southside.com/about/investor-relations.

For those unable to listen to the conference call live, a recording of the conference call with be available from approximately 3:00 pm CDT October 30, 2015 through November 10, 2015 by accessing the company website, www.southside.com/about/investor-relations.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles (GAAP) in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the following fully-taxable equivalent measures: tax-equivalent net interest income, tax-equivalent net interest margin, tax-equivalent net interest spread, and tax-equivalent efficiency ratio., which include the effects of taxable-equivalent adjustments using a federal income tax rate of 35% to increase tax-exempt interest income to a tax-equivalent basis. Tax-equivalent adjustments are reported in Notes 2 and 3 to the Average Balances with Average Yields and Rates tables under Results of Operations below.

Tax-equivalent net interest income, net interest margin and net interest spread. Net Interest Income on a tax-equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest income from loans and investments. We believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin on a tax-equivalent basis is net interest income on a tax-equivalent basis divided by average interest-earning assets on a tax-equivalent basis. Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-earning assets on a tax equivalent basis and the average rate paid on average interest-bearing liabilities.

Tax-equivalent efficiency ratio. The efficiency ratio on a tax-equivalent basis is a non-GAAP measure that provides a measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense, excluding amortization of intangibles and certain non-recurring expense by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains (losses) on sales of investment securities and certain non-recurring impairments.

These non-GAAP financial measures should not be considered an alternative to GAAP-basis financial statements, and other bank holding companies may define or calculate these or similar measures differently.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $4.8 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 61 banking centers in Texas and operates a network of over 70 ATMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/investor. Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data. To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website. Questions or comments may be directed to Deborah Wilkinson at (817) 367-4962, or deborah.wilkinson@southside.com.

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this document and in other written material, press releases and oral statements issued by or on behalf of the Company, may be considered to be “forward-looking statements” within the meaning of and subject to the protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “likely,” “intend,” “probability,” “risk,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to the Company’s beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. For example, discussions about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, merger-related integration cost savings, earnings and certain market risk disclosures, including the impact of interest rate and other economic uncertainty, are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 under “Forward-Looking Information” and Item 1A. “Risk Factors,” and in the Company’s other filings with the Securities and Exchange Commission. The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

SOUTHSIDE BANCSHARES, INC.
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
(In thousands, except per share data)
As of
2015 2014
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
ASSETS
Cash and due from banks$52,311 $50,406 $55,055 $64,001 $49,937
Interest-bearing deposits19,583 26,623 52,123 20,654 19,284
Investment securities:
Available for sale, at estimated fair value301,627 371,019 293,735 306,706 321,221
Held to maturity, at carrying value386,385 387,212 388,106 388,823 389,529
Mortgage-backed securities:
Available for sale, at estimated fair value1,073,368 1,094,802 1,140,140 1,142,002 674,529
Held to maturity, at carrying value385,529 356,669 249,430 253,496 256,528
Federal Home Loan Bank stock, at cost43,446 37,769 39,978 39,942 24,435
Loans held for sale4,883 7,431 4,096 2,899 75,436
Loans2,239,146 2,179,863 2,174,614 2,181,133 1,398,674
Less: Allowance for loan losses(18,402) (16,822) (16,926) (13,292) (13,415)
Net loans2,220,744 2,163,041 2,157,688 2,167,841 1,385,259
Premises & equipment, net109,087 110,493 111,903 112,860 53,889
Goodwill91,520 90,571 90,394 91,372 22,034
Other intangible assets, net7,090 7,654 8,242 8,844 100
Bank owned life insurance94,303 93,673 93,021 92,384 46,890
Other assets47,599 58,655 48,482 115,437 48,960
Total assets$4,837,475 $4,856,018 $4,732,393 $4,807,261 $3,368,031
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits$681,618 $715,966 $680,122 $661,014 $585,415
Interest-bearing deposits2,646,259 2,752,717 2,815,218 2,713,403 1,858,149
Total deposits3,327,877 3,468,683 3,495,340 3,374,417 2,443,564
Short-term obligations445,008 284,783 143,371 301,605 53,924
Long-term obligations558,867 632,565 609,856 660,363 536,315
Other liabilities58,575 38,313 49,012 45,633 43,119
Total liabilities4,390,327 4,424,344 4,297,579 4,382,018 3,076,922
Shareholders' equity447,148 431,674 434,814 425,243 291,109
Total liabilities and shareholders' equity$4,837,475 $4,856,018 $4,732,393 $4,807,261 $3,368,031


At or For the Three Months Ended
2015 2014
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Income Statement:
Total interest income$38,211 $37,750 $38,607 $29,613 $29,840
Total interest expense4,926 4,845 4,816 4,259 4,120
Net interest income33,285 32,905 33,791 25,354 25,720
Provision for loan losses2,276 268 3,848 3,287 4,868
Net interest income after provision for loan losses31,009 32,637 29,943 22,067 20,852
Noninterest income
Deposit services5,213 4,920 4,989 3,988 3,860
Net gain on sale of securities available for sale875 105 2,476 1,170 1,151
Impairment of investment in SFG Finance, LLC (516) (2,239)
Gain on sale of loans305 822 377 54 108
Trust income835 820 893 805 798
Bank owned life insurance income661 653 669 393 320
Other1,227 1,099 1,644 1,255 1,021
Total noninterest income9,116 8,419 11,048 7,149 5,019
Noninterest expense
Salaries and employee benefits15,733 16,869 18,199 21,829 12,798
Occupancy expense3,071 2,593 3,459 1,946 1,773
Advertising, travel & entertainment642 683 657 582 489
ATM and debit card expense617 750 679 385 327
Professional fees825 793 742 4,464 1,132
Software and data processing expense819 1,237 1,031 3,099 543
Telephone and communications534 603 469 332 292
FDIC insurance624 629 638 446 437
FHLB prepayment fees 539
Other3,527 3,768 3,835 3,457 2,226
Total noninterest expense26,392 27,925 29,709 37,079 20,017
Income (loss) before income tax expense13,733 13,131 11,282 (7,863) 5,854
Income tax expense (benefit)1,971 1,967 1,903 (3,918) (243)
Net income (loss)$11,762 $11,164 $9,379 $(3,945) $6,097


Common share data:
Weighted-average basic shares outstanding25,360 25,337 25,322 20,757 19,809
Weighted-average diluted shares outstanding25,445 25,425 25,403 20,757 19,915
Shares outstanding end of period25,373 25,351 25,331 25,317 19,863
Net income (loss) per common share
Basic$0.46 $0.44 $0.37 $(0.19) $0.31
Diluted0.46 0.44 0.37 (0.19) 0.31
Cash dividend paid per common share0.23 0.23 0.23 0.32 0.22


Selected Performance Ratios:
Return on average assets0.96% 0.93% 0.79% (0.43)% 0.72%
Return on average shareholders’ equity10.65 10.30 8.79 (4.94) 8.41
Average yield on interest earning assets3.79 3.83 3.95 3.92 4.32
Average yield on interest bearing liabilities0.53 0.53 0.53 0.63 0.67
Net interest spread3.26 3.30 3.42 3.29 3.65
Net interest margin3.35 3.39 3.50 3.42 3.80
Average interest earnings assets to average interest bearing liabilities121.61 120.22 118.36 125.71 128.27
Noninterest expense to average total assets2.16 2.34 2.50 4.04 2.38
Efficiency ratio56.36 59.98 62.07 60.04 55.05


At or For the
Nine Months Ended
September 30,
2015 2014
Income Statement:
Total interest income$114,568 $94,165
Total interest expense14,587 12,697
Net interest income99,981 81,468
Provision for loan losses6,392 11,651
Net interest income after provision for loan losses93,589 69,817
Noninterest income
Deposit services15,122 11,292
Net gain on sale of securities available for sale3,456 1,660
Impairment of investment in SFG Finance, LLC (2,239)
Gain on sale of loans1,504 269
Trust income2,548 2,340
Bank owned life insurance income1,983 941
Other3,970 3,077
Total noninterest income28,583 17,340
Noninterest expense
Salaries and employee benefits50,801 38,992
Occupancy expense9,123 5,313
Advertising, travel & entertainment1,982 1,637
ATM and debit card expense2,046 946
Professional fees2,360 3,363
Software and data processing expense3,087 1,530
Telephone and communications1,606 890
FDIC insurance1,891 1,319
Other11,130 6,635
Total noninterest expense84,026 60,625
Income before income tax expense38,146 26,532
Income tax expense5,841 1,754
Net income$32,305 $24,778


Common share data:
Weighted-average basic shares outstanding25,340 19,782
Weighted-average diluted shares outstanding25,424 19,881
Net income per common share
Basic$1.27 $1.25
Diluted1.27 1.25
Book value per common share17.62 14.66
Cash dividend paid per common share0.69 0.64


Selected Performance Ratios:
Return on average assets0.90% 0.97%
Return on average shareholders’ equity9.93 11.92
Average yield on interest earning assets3.85 4.42
Average yield on interest bearing liabilities0.53 0.67
Net interest spread3.32 3.75
Net interest margin3.41 3.89
Average interest earnings assets to average interest bearing liabilities120.06 126.45
Noninterest expense to average total assets2.33 2.37
Efficiency ratio59.48 53.94


Southside Bancshares, Inc.
Selected Financial Data (Unaudited)
(In thousands)
Three Months Ended
2015 2014
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Nonperforming assets33,621 27,794 27,262 12,277 9,864
Nonaccrual loans20,988 21,223 20,321 4,096 4,685
Accruing loans past due more than 90 days 30 1 4 1
Restructured loans11,772 5,667 5,782 5,874 4,388
Other real estate owned793 787 985 1,738 383
Repossessed assets68 87 173 565 407
Asset Quality Ratios:
Nonaccruing loans to total loans0.94% 0.97% 0.93% 0.19% 0.33%
Allowance for loan losses to nonaccruing loans87.68 79.26 83.29 324.51 286.34
Allowance for loan losses to nonperforming assets54.73 60.52 62.09 108.27 136.00
Allowance for loan losses to total loans0.82 0.77 0.78 0.61 0.96
Nonperforming assets to total assets0.70 0.57 0.58 0.26 0.29
Net charge-offs to average loans0.13 0.07 0.04 0.88 2.76
Capital Ratios:
Shareholders’ equity to total assets9.24 8.89 9.19 8.85 8.64
Average shareholders’ equity to average total assets9.03 9.07 8.98 8.71 8.61


Loan Portfolio Composition
The following table sets forth loan totals by category for the periods presented:
Real Estate Loans:
Construction$342,282 $295,633 $275,960 $267,830 $178,127
1-4 Family Residential678,431 683,944 693,137 690,895 394,889
Other537,161 500,906 470,877 468,171 332,519
Commercial Loans228,272 228,789 241,100 226,460 162,356
Municipal Loans262,384 256,492 252,756 257,492 256,319
Loans to Individuals190,616 214,099 240,784 270,285 74,464
Total Loans$2,239,146 $2,179,863 $2,174,614 $2,181,133 $1,398,674

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 rate of the interest bearing liabilities.

AVERAGE BALANCES WITH AVERAGE YIELDS AND RATES
(dollars in thousands)
(unaudited)
Three Months Ended
September 30, 2015 June 30, 2015
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2)$2,200,241 $24,779 4.47% $2,188,886 $24,889 4.56%
Loans Held For Sale5,327 52 3.87% 3,675 45 4.91%
Securities:
Investment Securities (Taxable) (4)86,105 475 2.19% 86,561 459 2.13%
Investment Securities (Tax-Exempt)(3)(4)638,767 8,750 5.43% 627,405 8,752 5.60%
Mortgage-backed Securities (4)1,441,129 8,318 2.29% 1,400,389 7,666 2.20%
Total Securities2,166,001 17,543 3.21% 2,114,355 16,877 3.20%
FHLB stock and other investments, at cost45,963 65 0.56% 42,741 65 0.61%
Interest Earning Deposits26,216 15 0.23% 39,609 29 0.29%
Total Interest Earning Assets4,443,748 42,454 3.79% 4,389,266 41,905 3.83%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks49,285 49,760
Bank Premises and Equipment110,028 111,384
Other Assets263,038 259,319
Less: Allowance for Loan Loss(17,021) (17,059)
Total Assets$4,849,078 $4,792,670
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$232,903 60 0.10% $234,097 59 0.10%
Time Deposits833,962 1,360 0.65% 853,410 1,313 0.62%
Interest Bearing Demand Deposits1,600,454 1,065 0.26% 1,701,559 1,121 0.26%
Total Interest Bearing Deposits2,667,319 2,485 0.37% 2,789,066 2,493 0.36%
Short-term Interest Bearing Liabilities398,905 354 0.35% 232,471 154 0.27%
Long-term Interest Bearing Liabilities – FHLB Dallas527,591 1,720 1.29% 569,302 1,837 1.29%
Long-term Debt (5)60,311 367 2.41% 60,311 361 2.40%
Total Interest Bearing Liabilities3,654,126 4,926 0.53% 3,651,150 4,845 0.53%
NONINTEREST BEARING LIABILITIES:
Demand Deposits715,326 669,068
Other Liabilities41,606 37,607
Total Liabilities4,411,058 4,357,825
SHAREHOLDERS’ EQUITY438,020 434,845
Total Liabilities and Shareholders’ Equity$4,849,078 $4,792,670
NET INTEREST INCOME $37,528 $37,060
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.35% 3.39%
NET INTEREST SPREAD 3.26% 3.30%


(1)Interest on loans includes net fees on loans that are not material in amount.
(2)Interest income includes taxable-equivalent adjustments of $1,044 and $1,047 for the three months ended September 30, 2015 and June 30, 2015, respectively.
(3)Interest income includes taxable-equivalent adjustments of $3,199 and $3,108 for the three months ended September 30, 2015 and June 30, 2015, respectively.
(4)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5)Represents the issuance of junior subordinated debentures.

Note: As of September 30, 2015 and June 30, 2015, loans on nonaccrual status totaled $20,988 and $21,223, respectively. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Three Months Ended
March 31, 2015 December 31, 2014
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2)$2,189,163 $24,938 4.62% $1,529,467 $17,601 4.57%
Loans Held For Sale1,987 28 5.71% 41,666 35 0.33%
Securities:
Investment Securities (Taxable) (4)49,437 237 1.94% 30,867 139 1.79%
Investment Securities (Tax-Exempt)(3)(4)645,231 8,834 5.55% 638,849 8,775 5.45%
Mortgage-backed Securities (4)1,392,606 8,462 2.46% 1,051,385 6,898 2.60%
Total Securities2,087,274 17,533 3.41% 1,721,101 15,812 3.64%
FHLB stock and other investments, at cost43,886 93 0.86% 28,942 37 0.51%
Interest Earning Deposits58,576 34 0.24% 69,701 43 0.24%
Total Interest Earning Assets4,380,886 42,626 3.95% 3,390,877 33,528 3.92%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks57,367 45,009
Bank Premises and Equipment112,635 63,598
Other Assets282,421 154,958
Less: Allowance for Loan Loss(13,625) (13,445)
Total Assets$4,819,684 $3,640,997
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$229,946 53 0.09% $138,724 35 0.10%
Time Deposits863,477 1,362 0.64% 625,896 1,043 0.66%
Interest Bearing Demand Deposits1,699,225 1,114 0.27% 1,278,924 899 0.28%
Total Interest Bearing Deposits2,792,648 2,529 0.37% 2,043,544 1,977 0.38%
Short-term Interest Bearing Liabilities272,302 142 0.21% 95,484 271 1.13%
Long-term Interest Bearing Liabilities – FHLB Dallas576,199 1,792 1.26% 497,948 1,652 1.32%
Long-term Debt (5)60,311 353 2.37% 60,311 359 2.36%
Total Interest Bearing Liabilities3,701,460 4,816 0.53% 2,697,287 4,259 0.63%
NONINTEREST BEARING LIABILITIES:
Demand Deposits645,573 594,326
Other Liabilities40,058 32,360
Total Liabilities4,387,091 3,323,973
SHAREHOLDERS’ EQUITY432,593 317,024
Total Liabilities and Shareholders’ Equity$4,819,684 $3,640,997
NET INTEREST INCOME $37,810 $29,269
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.50% 3.42%
NET INTEREST SPREAD 3.42% 3.29%


(1)Interest on loans includes net fees on loans that are not material in amount.
(2)Interest income includes taxable-equivalent adjustments of $1,050 and $874 for the three months ended March 31, 2015 and December 31, 2014, respectively.
(3)Interest income includes taxable-equivalent adjustments of $2,969 and $3,041 for the three months ended March 31, 2015 and December 31, 2014, respectively.
(4)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5)Represents the issuance of junior subordinated debentures.

Note: As of March 31, 2015 and December 31, 2014, loans on nonaccrual status totaled $20,321 and $4,096, respectively. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Three Months Ended
September 30, 2014
AVG
AVG YIELD/
BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2)$1,416,061 $18,172 5.09%
Loans Held For Sale1,277 4 1.24%
Securities:
Investment Securities (Taxable) (4)43,951 210 1.90%
Investment Securities (Tax-Exempt)(3)(4)698,438 9,614 5.46%
Mortgage-backed Securities (4)902,406 6,070 2.67%
Total Securities1,644,795 15,894 3.83%
FHLB stock and other investments, at cost26,123 36 0.55%
Interest Earning Deposits45,726 31 0.27%
Total Interest Earning Assets3,133,982 34,137 4.32%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks39,533
Bank Premises and Equipment53,626
Other Assets132,724
Less: Allowance for Loan Loss(18,029)
Total Assets$3,341,836
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$118,745 32 0.11%
Time Deposits573,893 1,011 0.70%
Interest Bearing Demand Deposits1,168,888 833 0.28%
Total Interest Bearing Deposits1,861,526 1,876 0.40%
Short-term Interest Bearing Liabilities39,146 226 2.29%
Long-term Interest Bearing Liabilities – FHLB Dallas482,241 1,659 1.36%
Long-term Debt (5)60,311 359 2.36%
Total Interest Bearing Liabilities2,443,224 4,120 0.67%
NONINTEREST BEARING LIABILITIES:
Demand Deposits578,866
Other Liabilities32,058
Total Liabilities3,054,148
SHAREHOLDERS’ EQUITY287,688
Total Liabilities and Shareholders’ Equity$3,341,836
NET INTEREST INCOME $30,017
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.80%
NET INTEREST SPREAD 3.65%


(1)Interest on loans includes net fees on loans that are not material in amount.
(2)Interest income includes taxable-equivalent adjustment of $1,008 for the three months ended September 30, 2014.
(3)Interest income includes taxable-equivalent adjustment of $3,289 for the three months ended September 30, 2014.
(4)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5)Represents the issuance of junior subordinated debentures.

Note: As of September 30, 2014, loans on nonaccrual status totaled $4,685. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

AVERAGE BALANCES WITH AVERAGE YIELDS AND RATES
(dollars in thousands)
(unaudited)
Nine Months Ended
September 30, 2015 September 30, 2014
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,192,804 $74,606 4.55% $1,384,269 $56,849 5.49%
Loans Held For Sale3,675 125 4.55% 682 12 2.35%
Securities:
Investment Securities (Taxable)(4)74,169 1,171 2.11% 33,943 476 1.87%
Investment Securities (Tax-Exempt)(3)(4)637,110 26,336 5.53% 666,084 27,488 5.52%
Mortgage-backed Securities (4)1,411,553 24,446 2.32% 1,057,683 21,309 2.69%
Total Securities2,122,832 51,953 3.27% 1,757,710 49,273 3.75%
FHLB stock and other investments, at cost44,204 223 0.67% 28,597 144 0.67%
Interest Earning Deposits41,348 78 0.25% 49,850 96 0.26%
Total Interest Earning Assets4,404,863 126,985 3.85% 3,221,108 106,374 4.42%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks52,108 42,780
Bank Premises and Equipment111,341 53,012
Other Assets268,188 126,457
Less: Allowance for Loan Loss(15,914) (18,435)
Total Assets$4,820,586 $3,424,922
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$232,326 172 0.10% $115,633 101 0.12%
Time Deposits850,175 4,035 0.63% 604,881 3,244 0.72%
Interest Bearing Demand Deposits1,666,718 3,300 0.26% 1,215,800 2,631 0.29%
Total Interest Bearing Deposits2,749,219 7,507 0.37% 1,936,314 5,976 0.41%
Short-term Interest Bearing Liabilities301,689 650 0.29% 53,604 353 0.88%
Long-term Interest Bearing Liabilities – FHLB Dallas557,519 5,349 1.28% 497,076 5,303 1.43%
Long-term Debt (5)60,311 1,081 2.40% 60,311 1,065 2.36%
Total Interest Bearing Liabilities3,668,738 14,587 0.53% 2,547,305 12,697 0.67%
NONINTEREST BEARING LIABILITIES:
Demand Deposits676,911 570,854
Other Liabilities39,764 28,765
Total Liabilities4,385,413 3,146,924
SHAREHOLDERS’ EQUITY435,173 277,998
Total Liabilities and Shareholders’ Equity$4,820,586 $3,424,922
NET INTEREST INCOME $112,398 $93,677
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.41% 3.89%
NET INTEREST SPREAD 3.32% 3.75%


(1)Interest on loans includes net fees on loans that are not material in amount.
(2)Interest income includes taxable-equivalent adjustments of $3,141 and $3,025 for the nine months ended September 30, 2015 and 2014, respectively.
(3)Interest income includes taxable-equivalent adjustments of $9,276 and $9,184 for the nine months ended September 30, 2015 and 2014, respectively.
(4)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5)Represents the issuance of junior subordinated debentures.

Note: As of September 30, 2015 and 2014, loans on nonaccrual status totaled $20,988 and $4,685, respectively. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Source:Southside Bancshares, Inc.