×

Southside Bancshares, Inc. Announces Financial Results for the Three and Six Months Ended June 30, 2016

TYLER, Texas, July 29, 2016 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three and six months ended June 30, 2016.

Southside reported net income of $11.4 million for the three months ended June 30, 2016, an increase of $231,000, or 2.1%, compared to $11.2 million for the same period in 2015. Net income for the six months ended June 30, 2016 increased $4.4 million, or 21.3%, to $24.9 million when compared to $20.5 million for the same period in 2015.

Diluted earnings per common share were $0.43 and $0.42 for the three months ended June 30, 2016 and 2015, respectively, an increase of $0.01, or 2.4%. For the six months ended June 30, 2016, diluted earnings per common share increased $0.17, or 22.1%, to $0.94 when compared to $0.77 for the same period in 2015.

The return on average shareholders’ equity for the six months ended June 30, 2016 was 10.93%, compared to 9.55% for the same period in 2015. The return on average assets was 0.99% for the six months ended June 30, 2016, compared to 0.86% for the same period in 2015.

“The second quarter results reflect an increase in net income for the quarter, a significant reduction in our nonperforming assets and continued success in our cost containment efforts,” stated Sam Dawson, Chief Executive Officer of Southside Bancshares, Inc. “While loan payoffs outpaced loans funded during the second quarter, we believe the second half of the year will produce solid loan growth based on the increase in our pipeline and loans currently expected to close in the very near future. Negotiated foreclosures began on two loans comprising approximately 62% of our nonperforming loans at March 31, 2016 subsequent to the end of the second quarter and partial charge-offs were recorded to reflect the estimated net selling price of the remaining assets at June 30, 2016. We currently anticipate cash sales in excess of $8 million of nonperforming assets related to these two loans prior to the end of the third quarter. Our nonperforming asset ratio to total assets also decreased to 0.49%.”

“The decrease in the net interest margin during the second quarter was reflective of a decrease in average loans on a linked quarter basis and a $1.3 million recovery of interest income on the payoff of a long-time nonaccrual loan during the first quarter of 2016. During the quarter we prepaid $63 million of higher cost FHLB advances that resulted in a prepayment fee of $148,000.”

“We continued to execute on our business plan of quality loan growth, cost containment, operational efficiencies and revenue generating opportunities. We incurred professional fees in connection with this effort of approximately $525,000 during the quarter. The anticipated results are operational efficiencies through changes in our back office processes, revised branch models commensurate with today's customer delivery preferences and enhanced noninterest income programs, which should continue to be implemented throughout the remainder of 2016. Noninterest expense decreased during the second quarter and our efficiency ratio decreased to 52.85%.”

Loans and Deposits

For the six months ended June 30, 2016, total loans decreased by $47.4 million, or 2.0%, when compared to December 31, 2015. The net decrease in our loans was comprised of decreases of $44.6 million of commercial loans, $32.0 million of loans to individuals, $22.0 million of 1-4 family residential loans, and $12.7 million of construction loans which were partially offset by increases of $59.1 million of commercial real estate loans and $4.8 million of municipal loans. Loans with oil and gas industry exposure totaled 1.19% of the loan portfolio at June 30, 2016.

Nonperforming assets decreased during the first six months of 2016 by $8.0 million, or 24.5%, to $24.5 million, or 0.49% of total assets, when compared to 0.63% at December 31, 2015.

During the six months ended June 30, 2016, the allowance for loan losses decreased $4.8 million, or 24.5%, to $14.9 million, or 0.63% of total loans, when compared to 0.81% at December 31, 2015, as a result of partial charge-offs of two large impaired commercial borrowing relationships.

During the six months ended June 30, 2016, deposits, net of brokered deposits, increased $118.8 million, or 3.5%, compared to December 31, 2015. During this six-month period, public fund deposits increased $93.5 million.

Net Interest Income for the Three Months Ended June 30, 2016

Net interest income increased $1.5 million, or 4.5%, to $34.4 million for the three months ended June 30, 2016, when compared to $32.9 million for the same period in 2015. The increase in net interest income was the result of the increase in interest income of $3.3 million which was primarily a result of the increase in the loan portfolio, compared to the same period in 2015. The increase in interest income was partially offset by an increase in interest expense of $1.9 million. For the three months ended June 30, 2016, our net interest spread decreased to 3.24%, compared to 3.30% for the same period in 2015, due to higher rates paid on interest-bearing liabilities, which more than offset the increase in the yield on interest-earning assets. Our net interest margin decreased to 3.35% for the three months ended June 30, 2016, compared to 3.39% for the same period in 2015. The net interest spread and margin on a linked quarter basis decreased from 3.40% and 3.51%, respectively, primarily due to a $1.3 million recovery of interest income on the payoff of a long-time nonaccrual loan during the first quarter.

Net Interest Income for the Six Months Ended June 30, 2016

Net interest income increased $4.3 million, or 6.4%, to $71.0 million for the six months ended June 30, 2016, when compared to $66.7 million for the same period in 2015. The increase in net interest income was due to the increase in interest income of $7.7 million which was primarily a result of the increase in the loan portfolio, compared to the same period in 2015, and a $1.3 million recovery of interest income on the payoff of a long-time nonaccrual loan during the first quarter of 2016. The increase in interest income was partially offset by an increase in interest expense of $3.4 million. For the six months ended June 30, 2016, our net interest spread decreased to 3.32%, compared to 3.36% for the same period in 2015, due to higher rates paid on interest-bearing liabilities, which more than offset the increase in the yield on interest-earning assets. Our net interest margin decreased slightly to 3.43% for the six months ended June 30, 2016, compared to 3.44% for the same period in 2015.

Net Income for the Three Months Ended June 30, 2016

Net income increased $231,000, or 2.1%, for the three months ended June 30, 2016, to $11.4 million when compared to the same period in 2015. The increase was primarily the result of an increase in interest income of $3.3 million and a decrease of $2.6 million in noninterest expense, which were partially offset by a $3.5 million increase to provision for loan losses, a $1.9 million increase to interest expense, and a $0.8 million increase to income tax expense.

Noninterest expense decreased $2.6 million, or 9.2%, for the three months ended June 30, 2016, compared to the same period in 2015, primarily due to decreases in salaries and employee benefits expense, software and data processing expense, and other noninterest expense which were partially offset by an increase in professional fees.

Net Income for the Six Months Ended June 30, 2016

Net income increased $4.4 million, or 21.3%, for the six months ended June 30, 2016, to $24.9 million when compared to the same period in 2015. The increase was primarily the result of an increase in interest income of $7.7 million and a decrease of $2.7 million in noninterest expense combined with a $1.2 million increase to noninterest income which were partially offset by a $3.4 million increase to interest expense, a $2.0 million increase to provision for loan losses and a $1.9 million increase in income tax expense.

Noninterest expense decreased $2.7 million, or 4.6%, for the six months ended June 30, 2016, compared to the same period in 2015, primarily due to decreases in salaries and employee benefits expense, software and data processing expense, and other noninterest expense which were partially offset by an increase in professional fees.

Conference Call

Southside's management team will host a conference call to discuss its second quarter 2016 financial results on Friday, July 29, 2016 at 9:00 am CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 47285374 or by identifying “Southside Bancshares, Inc., Second Quarter 2016 Earnings Call.” To listen to the call via web-cast, register at www.southside.com/about/investor-relations.

For those unable to listen to the conference call live, a recording of the conference call will be available from approximately 3:00 pm CDT July 29, 2016 through August 10, 2016 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. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-earning assets on a tax equivalent basis and the average rate paid on average interest-bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

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

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.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $5.0 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 60 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/about/investor-relations. Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data. To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website. Questions or comments may be directed to 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 safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “likely,” “intend,” “probability,” “risk,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to the Company’s beliefs, plans, expectations, objectives, goals, anticipations, assumptions and estimates about the Company's future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. For example, discussions about trends in asset quality, capital, liquidity, the pace of loan and revenue growth, the Company's ability to sell nonperforming assets, expense reductions, the benefits of the Share Repurchase Plan, planned operational efficiencies, earnings and certain market risk disclosures, including the impact of interest rates and other economic factors, are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 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
2016 2015
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
ASSETS
Cash and due from banks$45,663 $52,324 $54,288 $52,311 $50,406
Interest earning deposits18,450 16,130 26,687 19,583 26,623
Securities available for sale, at estimated fair value1,416,335 1,332,381 1,460,492 1,374,995 1,465,821
Securities held to maturity, at carrying value784,925 784,579 784,296 771,914 743,881
Federal Home Loan Bank stock, at cost47,702 47,550 51,047 43,446 37,769
Loans held for sale5,883 4,971 3,811 4,883 7,431
Loans2,384,321 2,443,231 2,431,753 2,239,146 2,179,863
Less: Allowance for loan losses(14,908) (21,799) (19,736) (18,402) (16,822)
Net loans2,369,413 2,421,432 2,412,017 2,220,744 2,163,041
Premises & equipment, net107,242 107,556 107,929 109,087 110,493
Goodwill91,520 91,520 91,520 91,520 90,571
Other intangible assets, net5,534 6,029 6,548 7,090 7,654
Bank owned life insurance96,375 95,718 95,080 94,303 93,673
Other assets45,963 58,822 68,361 47,599 58,655
Total assets$5,035,005 $5,019,012 $5,162,076 $4,837,475 $4,856,018
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$679,831 $698,695 $672,470 $681,618 $715,966
Interest bearing deposits2,890,418 2,920,673 2,782,937 2,646,259 2,752,717
Total deposits3,570,249 3,619,368 3,455,407 3,327,877 3,468,683
Short-term obligations385,717 259,646 647,836 445,008 284,783
Long-term obligations559,148 622,301 562,592 558,867 632,565
Other liabilities47,591 60,121 52,179 58,575 38,313
Total liabilities4,562,705 4,561,436 4,718,014 4,390,327 4,424,344
Shareholders' equity472,300 457,576 444,062 447,148 431,674
Total liabilities and shareholders' equity$5,035,005 $5,019,012 $5,162,076 $4,837,475 $4,856,018


At or For the Three Months Ended
2016 2015
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Income Statement:
Total interest income$41,089 $43,012 $39,964 $38,211 $37,750
Total interest expense6,710 6,395 5,267 4,926 4,845
Net interest income34,379 36,617 34,697 33,285 32,905
Provision for loan losses3,768 2,316 1,951 2,276 268
Net interest income after provision for loan losses30,611 34,301 32,746 31,009 32,637
Noninterest income
Deposit services5,099 5,085 4,990 5,213 4,920
Net gain on sale of securities available for sale728 2,441 204 875 105
Gain on sale of loans873 643 578 305 822
Trust income869 855 871 835 820
Bank owned life insurance income647 674 640 661 653
Brokerage services535 575 555 540 472
Other619 1,323 977 932 1,139
Total noninterest income9,370 11,596 8,815 9,361 8,931
Noninterest expense
Salaries and employee benefits14,849 17,732 16,420 15,733 16,869
Occupancy expense2,993 3,335 3,263 3,316 3,105
Advertising, travel & entertainment722 685 726 642 683
ATM and debit card expense736 712 1,086 617 750
Professional fees1,478 1,338 1,517 825 793
Software and data processing expense739 749 771 819 1,237
Telephone and communications468 484 372 534 603
FDIC insurance645 638 619 624 629
FHLB prepayment fees148
Other3,036 3,735 3,657 3,527 3,768
Total noninterest expense25,814 29,408 28,431 26,637 28,437
Income before income tax expense14,167 16,489 13,130 13,733 13,131
Income tax expense2,772 2,973 1,438 1,971 1,967
Net income$11,395 $13,516 $11,692 $11,762 $11,164


Common share data:
Weighted-average basic shares outstanding26,230 26,449 26,653 26,632 26,608
Weighted-average diluted shares outstanding26,349 26,519 26,745 26,721 26,701
Shares outstanding end of period26,251 26,222 26,670 26,645 26,623
Net income per common share
Basic$0.43 $0.51 $0.44 $0.44 $0.42
Diluted0.43 0.51 0.44 0.44 0.42
Book value per common share17.99 17.46 16.66 16.78 16.22
Cash dividend paid per common share0.24 0.23 0.31 0.23 0.23


Selected Performance Ratios:
Return on average assets0.90% 1.07% 0.92% 0.96% 0.93%
Return on average shareholders’ equity9.91 11.96 10.35 10.65 10.30
Average yield on interest earning assets3.93 4.06 3.80 3.79 3.83
Average rate on interest bearing liabilities0.69 0.66 0.54 0.53 0.53
Net interest spread3.24 3.40 3.26 3.26 3.30
Net interest margin3.35 3.51 3.35 3.35 3.39
Average interest earnings assets to average interest bearing liabilities120.21 119.62 120.29 121.61 120.22
Noninterest expense to average total assets2.05 2.33 2.25 2.18 2.38
Efficiency ratio52.85 57.47 58.45 56.59 60.43



At or For the
Six Months Ended
June 30,
2016 2015
Income Statement:
Total interest income$84,101 $76,357
Total interest expense13,105 9,661
Net interest income70,996 66,696
Provision for loan losses6,084 4,116
Net interest income after provision for loan losses64,912 62,580
Noninterest income
Deposit services10,184 9,909
Net gain on sale of securities available for sale3,169 2,581
Gain on sale of loans1,516 1,199
Trust income1,724 1,713
Bank owned life insurance income1,321 1,322
Brokerage services1,110 1,111
Other1,942 1,884
Total noninterest income20,966 19,719
Noninterest expense
Salaries and employee benefits32,581 35,068
Occupancy expense6,328 6,304
Advertising, travel & entertainment1,407 1,340
ATM and debit card expense1,448 1,429
Professional fees2,816 1,535
Software and data processing expense1,488 2,268
Telephone and communications952 1,072
FDIC insurance1,283 1,267
FHLB prepayment fees148
Other6,771 7,603
Total noninterest expense55,222 57,886
Income before income tax expense30,656 24,413
Income tax expense5,745 3,870
Net income$24,911 $20,543
Common share data:
Weighted-average basic shares outstanding26,340 26,600
Weighted-average diluted shares outstanding26,434 26,689
Net income per common share
Basic$0.94 $0.77
Diluted0.94 0.77
Book value per common share17.99 16.22
Cash dividend paid per common share0.47 0.46
Selected Performance Ratios:
Return on average assets 0.99% 0.86%
Return on average shareholders’ equity 10.93 9.55
Average yield on interest earning assets 4.00 3.89
Average yield on interest bearing liabilities 0.68 0.53
Net interest spread 3.32 3.36
Net interest margin 3.43 3.44
Average interest earnings assets to average interest bearing liabilities 119.91 119.28
Noninterest expense to average total assets 2.19 2.43
Efficiency ratio 55.22 61.14


Southside Bancshares, Inc.
Selected Financial Data (Unaudited)
(In thousands)
Three Months Ended
2016 2015
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Nonperforming assets$24,510 $34,046 $32,480 $33,621 $27,794
Nonaccrual loans (1)11,767 21,927 20,526 20,988 21,223
Accruing loans past due more than 90 days (1)6 7 3 30
Restructured loans (2)12,477 11,762 11,143 11,772 5,667
Other real estate owned237 265 744 793 787
Repossessed assets23 85 64 68 87
Asset Quality Ratios:
Nonaccruing loans to total loans0.49% 0.90% 0.84% 0.94% 0.97%
Allowance for loan losses to nonaccruing loans126.69 99.42 96.15 87.68 79.26
Allowance for loan losses to nonperforming assets60.82 64.03 60.76 54.73 60.52
Allowance for loan losses to total loans0.63 0.89 0.81 0.82 0.77
Nonperforming assets to total assets0.49 0.68 0.63 0.70 0.57
Net charge-offs to average loans1.77 0.04 0.11 0.13 0.07
Capital Ratios:
Shareholders’ equity to total assets9.38 9.12 8.60 9.24 8.89
Average shareholders’ equity to average total assets9.11 8.94 8.92 9.03 9.07
(1) Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $8.3 million, $7.4 million, $7.5 million, and $6.8 million in PCI loans restructured as of June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 2015, respectively.

Loan Portfolio Composition

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

Real Estate Loans:
Construction$425,595 $464,750 $438,247 $342,282 $295,633
1-4 Family Residential633,400 644,826 655,410 678,431 683,944
Commercial694,272 657,962 635,210 537,161 500,906
Commercial Loans197,896 233,857 242,527 228,272 228,789
Municipal Loans292,909 286,217 288,115 262,384 256,492
Loans to Individuals140,249 155,619 172,244 190,616 214,099
Total Loans$2,384,321 $2,443,231 $2,431,753 $2,239,146 $2,179,863

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
June 30, 2016 March 31, 2016
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2)$2,426,733 $27,275 4.52% $2,434,837 $28,793 4.76%
Loans Held For Sale4,984 40 3.23% 3,581 32 3.59%
Securities:
Investment Securities (Taxable) (4)22,010 107 1.96% 41,659 214 2.07%
Investment Securities (Tax-Exempt)(3)(4)657,568 8,636 5.28% 635,766 8,494 5.37%
Mortgage-backed Securities (4)1,450,868 9,366 2.60% 1,454,343 9,391 2.60%
Total Securities2,130,446 18,109 3.42% 2,131,768 18,099 3.41%
FHLB stock and other investments, at cost52,952 185 1.41% 55,116 217 1.58%
Interest Earning Deposits57,493 61 0.43% 51,246 70 0.55%
Total Interest Earning Assets4,672,608 45,670 3.93% 4,676,548 47,211 4.06%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks47,079 55,732
Bank Premises and Equipment107,842 107,941
Other Assets270,219 262,160
Less: Allowance for Loan Losses(22,377) (20,088)
Total Assets$5,075,371 $5,082,293
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$244,639 68 0.11% $235,492 65 0.11%
Time Deposits976,600 1,927 0.79% 915,316 1,723 0.76%
Interest Bearing Demand Deposits1,727,431 1,520 0.35% 1,717,717 1,468 0.34%
Total Interest Bearing Deposits2,948,670 3,515 0.48% 2,868,525 3,256 0.46%
Short-term Interest Bearing Liabilities385,858 906 0.94% 413,985 696 0.68%
Long-term Interest Bearing Liabilities – FHLB Dallas492,296 1,874 1.53% 566,825 2,039 1.45%
Long-term Debt (5)60,311 415 2.77% 60,311 404 2.69%
Total Interest Bearing Liabilities3,887,135 6,710 0.69% 3,909,646 6,395 0.66%
NONINTEREST BEARING LIABILITIES:
Demand Deposits682,360 672,865
Other Liabilities43,360 45,390
Total Liabilities4,612,855 4,627,901
SHAREHOLDERS’ EQUITY462,516 454,392
Total Liabilities and Shareholders’ Equity$5,075,371 $5,082,293
NET INTEREST INCOME $38,960 $40,816
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.35% 3.51%
NET INTEREST SPREAD 3.24% 3.40%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,082 and $1,060 for the three months ended June 30, 2016 and March 31, 2016, respectively.
(3) Interest income includes taxable-equivalent adjustments of $3,499 and $3,139 for the three months ended June 30, 2016 and March 31, 2016, 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 June 30, 2016 and March 31, 2016, loans on nonaccrual status totaled $11,767 and $21,927, 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
December 31, 2015 September 30, 2015
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2)$2,318,162 $25,865 4.43% $2,200,241 $24,779 4.47%
Loans Held For Sale2,740 30 4.34% 5,327 52 3.87%
Securities:
Investment Securities (Taxable) (4)81,344 416 2.03% 86,105 475 2.19%
Investment Securities (Tax-Exempt)(3)(4)637,993 8,645 5.38% 638,767 8,750 5.43%
Mortgage-backed Securities (4)1,493,020 9,215 2.45% 1,441,129 8,318 2.29%
Total Securities2,212,357 18,276 3.28% 2,166,001 17,543 3.21%
FHLB stock and other investments, at cost53,643 75 0.55% 45,963 65 0.56%
Interest Earning Deposits34,147 23 0.27% 26,216 15 0.23%
Total Interest Earning Assets4,621,049 44,269 3.80% 4,443,748 42,454 3.79%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks53,267 49,285
Bank Premises and Equipment108,812 110,028
Other Assets258,917 263,038
Less: Allowance for Loan Losses(18,720) (17,021)
Total Assets$5,023,325 $4,849,078
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$232,561 61 0.10% $232,903 60 0.10%
Time Deposits833,141 1,477 0.70% 833,962 1,360 0.65%
Interest Bearing Demand Deposits1,594,109 1,117 0.28% 1,600,454 1,065 0.26%
Total Interest Bearing Deposits2,659,811 2,655 0.40% 2,667,319 2,485 0.37%
Short-term Interest Bearing Liabilities630,998 600 0.38% 398,905 354 0.35%
Long-term Interest Bearing Liabilities – FHLB Dallas490,396 1,638 1.33% 527,591 1,720 1.29%
Long-term Debt (5)60,311 374 2.46% 60,311 367 2.41%
Total Interest Bearing Liabilities3,841,516 5,267 0.54% 3,654,126 4,926 0.53%
NONINTEREST BEARING LIABILITIES:
Demand Deposits686,574 715,326
Other Liabilities47,155 41,606
Total Liabilities4,575,245 4,411,058
SHAREHOLDERS’ EQUITY448,080 438,020
Total Liabilities and Shareholders’ Equity$5,023,325 $4,849,078
NET INTEREST INCOME $39,002 $37,528
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.35% 3.35%
NET INTEREST SPREAD 3.26% 3.26%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,068 and $1,044 for the three months ended December 31, 2015 and September 30, 2015, respectively.
(3) Interest income includes taxable-equivalent adjustments of $3,237 and $3,199 for the three months ended December 31, 2015 and September 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 December 31, 2015 and September 30, 2015, loans on nonaccrual status totaled $20,526 and $20,988, 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
June 30, 2015
AVG
AVG YIELD/
BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2)$2,188,886 $24,889 4.56%
Loans Held For Sale3,675 45 4.91%
Securities:
Investment Securities (Taxable) (4)86,561 459 2.13%
Investment Securities (Tax-Exempt)(3)(4)627,405 8,752 5.60%
Mortgage-backed Securities (4)1,400,389 7,666 2.20%
Total Securities2,114,355 16,877 3.20%
FHLB stock and other investments, at cost42,741 65 0.61%
Interest Earning Deposits39,609 29 0.29%
Total Interest Earning Assets4,389,266 41,905 3.83%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks49,760
Bank Premises and Equipment111,384
Other Assets259,319
Less: Allowance for Loan Losses(17,059)
Total Assets$4,792,670
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$234,097 59 0.10%
Time Deposits853,410 1,313 0.62%
Interest Bearing Demand Deposits1,701,559 1,121 0.26%
Total Interest Bearing Deposits2,789,066 2,493 0.36%
Short-term Interest Bearing Liabilities232,471 154 0.27%
Long-term Interest Bearing Liabilities – FHLB Dallas569,302 1,837 1.29%
Long-term Debt (5)60,311 361 2.40%
Total Interest Bearing Liabilities3,651,150 4,845 0.53%
NONINTEREST BEARING LIABILITIES:
Demand Deposits669,068
Other Liabilities37,607
Total Liabilities4,357,825
SHAREHOLDERS’ EQUITY434,845
Total Liabilities and Shareholders’ Equity$4,792,670
NET INTEREST INCOME $37,060
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.39%
NET INTEREST SPREAD 3.30%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustment of $1,047 for the three months ended June 30, 2015.
(3) Interest income includes taxable-equivalent adjustment of $3,108 for the three months ended June 30, 2015.
(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 June 30, 2015, loans on nonaccrual status totaled $21,223. 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)
Six Months Ended
June 30, 2016 June 30, 2015
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,430,783 $56,068 4.64% $2,189,023 $49,827 4.59%
Loans Held For Sale4,283 72 3.38% 2,835 73 5.19%
Securities:
Investment Securities (Taxable)(4)31,835 321 2.03% 68,102 696 2.06%
Investment Securities (Tax-Exempt)(3)(4)646,667 17,130 5.33% 636,269 17,586 5.57%
Mortgage-backed Securities (4)1,452,605 18,757 2.60% 1,396,519 16,128 2.33%
Total Securities2,131,107 36,208 3.42% 2,100,890 34,410 3.30%
FHLB stock and other investments, at cost54,034 402 1.50% 43,311 158 0.74%
Interest Earning Deposits54,255 131 0.49% 49,040 63 0.26%
Total Interest Earning Assets4,674,462 92,881 4.00% 4,385,099 84,531 3.89%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks51,406 53,542
Bank Premises and Equipment107,891 112,006
Other Assets266,186 270,806
Less: Allowance for Loan Losses(21,233) (15,351)
Total Assets$5,078,712 $4,806,102
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$240,066 133 0.11% $232,033 112 0.10%
Time Deposits945,958 3,650 0.78% 858,416 2,675 0.63%
Interest Bearing Demand Deposits1,722,573 2,988 0.35% 1,700,399 2,235 0.27%
Total Interest Bearing Deposits2,908,597 6,771 0.47% 2,790,848 5,022 0.36%
Short-term Interest Bearing Liabilities399,922 1,602 0.81% 252,276 296 0.24%
Long-term Interest Bearing Liabilities – FHLB Dallas529,561 3,913 1.49% 572,731 3,629 1.28%
Long-term Debt (5)60,311 819 2.73% 60,311 714 2.39%
Total Interest Bearing Liabilities3,898,391 13,105 0.68% 3,676,166 9,661 0.53%
NONINTEREST BEARING LIABILITIES:
Demand Deposits677,612 657,386
Other Liabilities44,247 38,827
Total Liabilities4,620,250 4,372,379
SHAREHOLDERS’ EQUITY458,462 433,723
Total Liabilities and Shareholders’ Equity$5,078,712 $4,806,102
NET INTEREST INCOME $79,776 $74,870
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.43% 3.44%
NET INTEREST SPREAD 3.32% 3.36%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $2,142 and $2,097 for the six months ended June 30, 2016 and 2015, respectively.
(3) Interest income includes taxable-equivalent adjustments of $6,638 and $6,077 for the six months ended June 30, 2016 and 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 June 30, 2016 and 2015, loans on nonaccrual status totaled $11,767 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.


Source:Southside Bancshares, Inc.