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

TYLER, Texas, Oct. 28, 2016 (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, 2016.

Southside reported net income of $12.9 million for the three months ended September 30, 2016, an increase of $1.1 million, or 9.4%, compared to $11.8 million for the same period in 2015. Net income for the nine months ended September 30, 2016 increased $5.5 million, or 16.9%, to $37.8 million when compared to $32.3 million for the same period in 2015.

Diluted earnings per common share were $0.49 and $0.44 for the three months ended September 30, 2016 and 2015, respectively, an increase of $0.05, or 11.4%. For the nine months ended September 30, 2016, diluted earnings per common share increased $0.22, or 18.2%, to $1.43 when compared to $1.21 for the same period in 2015.

The return on average shareholders’ equity for the nine months ended September 30, 2016 was 10.87%, compared to 9.93% for the same period in 2015. The return on average assets was 0.98% for the nine months ended September 30, 2016, compared to 0.90% for the same period in 2015.

“We are pleased to report that during the third quarter our net income increased 9.4% compared to the same period in 2015,” stated Sam Dawson, Chief Executive Officer of Southside Bancshares, Inc. “Loans increased $99.3 million, or 4.2%, on a linked quarter basis and we sold a significant portion of nonperforming assets. We incurred approximately $400,000 of net expense during the quarter associated with the sale of the nonperforming assets. Our nonperforming assets to total assets ratio has declined to 0.29%. Loan commitments made during 2016 began to fund at a greater pace during the third quarter, which we anticipate continuing through the fourth quarter. We believe that we continue to have an opportunity to book a number of quality loans and that our pipeline remains solid. During the third quarter, we prepaid a lease at approximately 59% of the remaining lease payments on a Fort Worth operations facility that was recently vacated. The cost of prepaying this lease, combined with writing off the leasehold improvements, was $1.8 million. We anticipate that the savings going forward will be approximately $45,000 a month.”

“The decrease in the net interest margin during the third quarter on a linked quarter basis was primarily reflective of a decrease in the average yield on loans and securities. Average loan yields decreased primarily as a result of a decrease in purchase accretion of $487,000 compared to the second quarter. Average security yields decreased due to overall lower interest rates which was slightly offset by an increase in average total securities during the third quarter.”

“In September 2016, we issued $100.0 million of 5.50% Fixed-to-Floating Rate Subordinated Notes due 2026. This debt initially bears interest at a fixed rate of 5.50% through September 29, 2021 and thereafter, adjusts quarterly at a floating rate equal to three-month LIBOR plus 429.7 basis points. We plan to use the proceeds from the issuance of the notes for general corporate purposes and to finance the activities of our subsidiaries.”

“Our team members continue to execute on our business plan of quality loan growth, revenue generating opportunities, innovative financial services and delivery channels and cost containment.”

Loans and Deposits

For the nine months ended September 30, 2016, total loans increased by $51.9 million, or 2.1%, when compared to December 31, 2015. The net increase in our loans was comprised of increases of $124.6 million of commercial real estate loans, $28.1 million of construction loans, and $5.8 million of municipal loans, which were partially offset by decreases of $51.4 million of commercial loans, $44.6 million of loans to individuals, and $10.7 million of 1-4 family residential loans. Loans with oil and gas industry exposure totaled 1.13% of the loan portfolio at September 30, 2016.

Nonperforming assets decreased during the nine months ended September 30, 2016 by $16.5 million, or 50.7%, to $16.0 million, or 0.29% of total assets, when compared to 0.63% at December 31, 2015.

During the nine months ended September 30, 2016, the allowance for loan losses decreased $3.7 million, or 19.0%, to $16.0 million, or 0.64% 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.

During the nine months ended September 30, 2016, deposits, net of brokered deposits, increased $151.1 million, or 4.5%, compared
to December 31, 2015. During this nine-month period, public fund deposits increased $67.6 million.

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

Net interest income increased $0.6 million, or 1.9%, to $33.9 million for the three months ended September 30, 2016, when compared to $33.3 million for the same period in 2015. The increase in net interest income was the result of the increase in interest income of $2.9 million, which was primarily a result of the increase in the loan and securities portfolio, compared to the same period in 2015. The increase in interest income was partially offset by an increase in interest expense of $2.3 million. For the three months ended September 30, 2016, our net interest spread decreased to 3.06%, compared to 3.25% for the same period in 2015, due to higher rates paid on interest-bearing liabilities along with a slight decrease in the yield on interest-earning assets. Our net interest margin decreased to 3.19% for the three months ended September 30, 2016, compared to 3.35% for the same period in 2015. The net interest spread and margin on a linked quarter basis decreased from 3.24% and 3.35%, respectively.

Net Interest Income for the Nine Months Ended September 30, 2016

Net interest income increased $4.9 million, or 4.9%, to $104.9 million for the nine months ended September 30, 2016, when compared to $100.0 million for the same period in 2015. The increase in net interest income was due to the increase in interest income of $10.7 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 $5.7 million. For the nine months ended September 30, 2016, our net interest spread decreased to 3.23%, compared to 3.32% 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 nine months ended September 30, 2016, compared to 3.41% for the same period in 2015.

Net Income for the Three Months Ended September 30, 2016

Net income increased $1.1 million, or 9.4%, for the three months ended September 30, 2016, to $12.9 million when compared to the same period in 2015. The increase was primarily the result of a $2.9 million increase in interest income, a $2.4 million increase in noninterest income and a $0.6 million decrease in provision for loan losses, partially offset by a $2.3 million increase in interest expense, a $1.8 million increase in noninterest expense, and a $0.8 million increase in income tax expense.

Noninterest income increased $2.4 million, or 25.3%, for the three months ended September 30, 2016 compared to the same period in 2015, primarily due to increases in net gain on sale of securities available for sale and gain on sale of loans.

Noninterest expense increased $1.8 million, or 6.7%, for the three months ended September 30, 2016, compared to the same period in 2015, primarily due to increases in occupancy expense, professional fees, and other noninterest expense partially offset by decreases in salaries and employee benefits, advertising, travel and entertainment, and telephone and communication expense.

Net Income for the Nine Months Ended September 30, 2016

Net income increased $5.5 million, or 16.9%, for the nine months ended September 30, 2016, to $37.8 million when compared to the same period in 2015. The increase was primarily the result of a $10.7 million increase in interest income, a $3.6 million increase in noninterest income and a $0.9 million decrease in noninterest expense, partially offset by a $5.7 million increase in interest expense, a $2.6 million increase in income tax expense and a $1.3 million increase in provision for loan losses.

Noninterest income increased $3.6 million, or 12.4%, for the nine months ended September 30, 2016 compared to the same period in 2015, primarily due to increases in net gain on sale of securities available for sale and gain on sale of loans.

Noninterest expense decreased $0.9 million, or 1.0%, for the nine months ended September 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 telephone and communication expense, partially offset by increases in professional fees, occupancy expense, and ATM and debit card expense.

Conference Call

Southside's management team will host a conference call to discuss its third quarter 2016 financial results on Friday, October 28, 2016 at 9:00 am CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 95800526 or by identifying “Southside Bancshares, Inc., Third 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 October 28, 2016 through November 9, 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. Whenever we present a non-GAAP financial measure in an SEC filing, we are also required to present the most directly comparable financial measure calculated and presented in accordance with GAAP and reconcile the differences between the non-GAAP financial measure and such comparable GAAP measure. 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 $5.5 billion in assets as of September 30, 2016, 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/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)
ASSETS As of
2016 2015
Sept. 30,June 30,Mar. 31,Dec. 31,Sept. 30,
Cash and due from banks$ 54,255 $ 45,663 $ 52,324 $ 54,288 $ 52,311
Interest earning deposits 144,833 18,450 16,130 26,687 19,583
Securities available for sale, at estimated fair value 1,622,128 1,416,335 1,332,381 1,460,492 1,374,995
Securities held to maturity, at carrying value 775,682 784,925 784,579 784,296 771,914
Federal Home Loan Bank stock, at cost 51,901 47,702 47,550 51,047 43,446
Loans held for sale 5,301 5,883 4,971 3,811 4,883
Loans 2,483,641 2,384,321 2,443,231 2,431,753 2,239,146
Less: Allowance for loan losses (15,993) (14,908) (21,799) (19,736) (18,402)
Net loans 2,467,648 2,369,413 2,421,432 2,412,017 2,220,744
Premises & equipment, net 106,777 107,242 107,556 107,929 109,087
Goodwill 91,520 91,520 91,520 91,520 91,520
Other intangible assets, net 5,060 5,534 6,029 6,548 7,090
Bank owned life insurance 97,002 96,375 95,718 95,080 94,303
Other assets 42,796 45,886 58,743 68,281 47,518
Total assets$5,464,903 $5,034,928 $5,018,933 $5,161,996 $4,837,394


LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$ 747,270 $ 679,831 $ 698,695 $ 672,470 $ 681,618
Interest bearing deposits 2,834,117 2,890,418 2,920,673 2,782,937 2,646,259
Total deposits 3,581,387 3,570,249 3,619,368 3,455,407 3,327,877
Short-term obligations 720,634 385,717 259,646 647,836 445,008
Long-term obligations 621,640 559,071 622,222 562,512 558,786
Other liabilities 68,682 47,591 60,121 52,179 58,575
Total liabilities 4,992,343 4,562,628 4,561,357 4,717,934 4,390,246
Shareholders' equity 472,560 472,300 457,576 444,062 447,148
Total liabilities and shareholders' equity$5,464,903 $5,034,928 $5,018,933 $5,161,996 $4,837,394


Income Statement: At or For the Three Months Ended
2016 2015
Sept. 30,June 30,Mar. 31,Dec. 31,Sept. 30,
Total interest income$ 41,132 $ 41,089 $ 43,012 $ 39,964 $ 38,211
Total interest expense 7,202 6,711 6,396 5,268 4,928
Net interest income 33,930 34,378 36,616 34,696 33,283
Provision for loan losses 1,631 3,768 2,316 1,951 2,276
Net interest income after provision for loan losses 32,299 30,610 34,300 32,745 31,007
Noninterest income
Deposit services 5,335 5,099 5,085 4,990 5,213
Net gain on sale of securities available for sale 2,343 728 2,441 204 875
Gain on sale of loans 818 873 643 578 305
Trust income 867 869 855 871 835
Bank owned life insurance income 656 647 674 640 661
Brokerage services 551 535 575 555 540
Other 1,162 619 1,323 977 932
Total noninterest income 11,732 9,370 11,596 8,815 9,361
Noninterest expense
Salaries and employee benefits 15,203 14,849 17,732 16,420 15,733
Occupancy expense 4,569 2,993 3,335 3,263 3,316
Advertising, travel & entertainment 588 722 685 726 642
ATM and debit card expense 868 736 712 1,086 617
Professional fees 1,148 1,478 1,338 1,517 825
Software and data processing expense 736 739 749 771 819
Telephone and communications 407 468 484 372 534
FDIC insurance 643 645 638 619 624
FHLB prepayment fees 148
Other 4,263 3,035 3,734 3,656 3,525
Total noninterest expense 28,425 25,813 29,407 28,430 26,635
Income before income tax expense 15,606 14,167 16,489 13,130 13,733
Income tax expense 2,741 2,772 2,973 1,438 1,971
Net income$ 12,865 $ 11,395 $ 13,516 $ 11,692 $ 11,762
Common share data:
Weighted-average basic shares outstanding 26,262 26,230 26,449 26,653 26,632
Weighted-average diluted shares outstanding 26,415 26,349 26,519 26,745 26,721
Shares outstanding end of period 26,278 26,251 26,222 26,670 26,645
Net income per common share
Basic$ 0.49 $ 0.43 $ 0.51 $ 0.44 $ 0.44
Diluted 0.49 0.43 0.51 0.44 0.44
Book value per common share 17.98 17.99 17.46 16.66 16.78
Cash dividend paid per common share
0.24 0.24 0.23 0.31 0.23
Selected Performance Ratios:
Return on average assets 0.98% 0.90% 1.07% 0.92% 0.96%
Return on average shareholders’ equity 10.78 9.91 11.96 10.35 10.65
Average yield on interest earning assets 3.78 3.93 4.06 3.80 3.79
Average rate on interest bearing liabilities 0.72 0.69 0.66 0.54 0.54
Net interest spread 3.06 3.24 3.40 3.26 3.25
Net interest margin 3.19 3.35 3.51 3.35 3.35
Average interest earnings assets to average interest bearing liabilities 120.40 120.21 119.62 120.29 121.61
Noninterest expense to average total assets 2.17 2.05 2.33 2.25 2.18
Efficiency ratio 53.88 52.85 57.47 58.45 56.60


Income Statement:At or For the
Nine Months Ended
September 30,
2016 2015
Total interest income$ 125,233 $ 114,568
Total interest expense 20,309 14,591
Net interest income 104,924 99,977
Provision for loan losses 7,715 6,392
Net interest income after provision for loan losses 97,209 93,585
Noninterest income
Deposit services 15,519 15,122
Net gain on sale of securities available for sale 5,512 3,456
Gain on sale of loans 2,334 1,504
Trust income 2,591 2,548
Bank owned life insurance income 1,977 1,983
Brokerage services 1,661 1,651
Other 3,104 2,816
Total noninterest income 32,698 29,080
Noninterest expense
Salaries and employee benefits 47,784 50,801
Occupancy expense 10,897 9,620
Advertising, travel & entertainment 1,995 1,982
ATM and debit card expense 2,316 2,046
Professional fees 3,964 2,360
Software and data processing expense 2,224 3,087
Telephone and communications 1,359 1,606
FDIC insurance 1,926 1,891
FHLB prepayment fees 148
Other 11,032 11,126
Total noninterest expense 83,645 84,519
Income before income tax expense 46,262 38,146
Income tax expense 8,486 5,841
Net income$ 37,776 $ 32,305
Common share data:
Weighted-average basic shares outstanding 26,314 26,611
Weighted-average diluted shares outstanding 26,425 26,700
Net income per common share
Basic$ 1.43 $ 1.21
Diluted 1.43 1.21
Book value per common share 17.98 16.78
Cash dividend paid per common share 0.71 0.69
Selected Performance Ratios:
Return on average assets 0.98% 0.90%
Return on average shareholders’ equity 10.87 9.93
Average yield on interest earning assets 3.92 3.85
Average yield on interest bearing liabilities 0.69 0.53
Net interest spread 3.23 3.32
Net interest margin 3.35 3.41
Average interest earnings assets to average interest bearing liabilities 120.08 120.07
Noninterest expense to average total assets 2.18 2.34
Efficiency ratio 54.78 59.63



Southside Bancshares, Inc.
Selected Financial Data (Unaudited)
(In thousands)

Three Months Ended
2016 2015
Sept. 30,June 30,Mar. 31,Dec. 31,Sept. 30,
Nonperforming assets$ 16,008 $ 24,510 $ 34,046 $ 32,480 $ 33,621
Nonaccrual loans (1) 8,536 11,767 21,927 20,526 20,988
Accruing loans past due more than 90 days (1) 1 6 7 3
Restructured loans (2) 7,193 12,477 11,762 11,143 11,772
Other real estate owned 237 237 265 744 793
Repossessed assets
41 23 85 64 68
Asset Quality Ratios:
Nonaccruing loans to total loans 0.34% 0.49% 0.90% 0.84% 0.94%
Allowance for loan losses to nonaccruing loans 187.36 126.69 99.42 96.15 87.68
Allowance for loan losses to nonperforming assets 99.91 60.82 64.03 60.76 54.73
Allowance for loan losses to total loans 0.64 0.63 0.89 0.81 0.82
Nonperforming assets to total assets 0.29 0.49 0.68 0.63 0.70
Net charge-offs to average loans
0.09 1.77 0.04 0.11 0.13
Capital Ratios:
Shareholders’ equity to total assets 8.65 9.38 9.12 8.60 9.24
Average shareholders’ equity to average total assets 9.10 9.11 8.94 8.92 9.03


(1) Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $3.2 million, $8.3 million, $7.4 million, $7.5 million, and $6.8 million in PCI loans restructured as of September 30, 2016,
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$466,323 $425,595 $464,750 $438,247 $342,282
1-4 Family Residential 644,746 633,400 644,826 655,410 678,431
Commercial 759,795 694,272 657,962 635,210 537,161
Commercial Loans 191,154 197,896 233,857 242,527 228,272
Municipal Loans 293,949 292,909 286,217 288,115 262,384
Loans to Individuals 127,674 140,249 155,619 172,244 190,616
Total Loans$2,483,641 $2,384,321 $2,443,231 $2,431,753 $2,239,146

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, 2016 June 30, 2016
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,436,349 $ 26,750 4.37%$ 2,426,733 $ 27,275 4.52%
Loans Held For Sale 6,718 54 3.20% 4,984 40 3.23%
Securities:
Investment Securities (Taxable) (4) 61,238 251 1.63% 22,010 107 1.96%
Investment Securities (Tax-Exempt) (3) (4) 690,635 8,911 5.13% 657,568 8,636 5.28%
Mortgage-backed Securities (4) 1,492,271 9,399 2.51% 1,450,868 9,366 2.60%
Total Securities 2,244,144 18,561 3.29% 2,130,446 18,109 3.42%
FHLB stock and other investments, at cost 54,085 186 1.37% 52,952 185 1.41%
Interest Earning Deposits 57,598 89 0.61% 57,493 61 0.43%
Total Interest Earning Assets 4,798,894 45,640 3.78% 4,672,608 45,670 3.93%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 49,418 47,079
Bank Premises and Equipment 107,318 107,842
Other Assets 278,599 270,141
Less: Allowance for Loan Losses (14,989) (22,377)
Total Assets$5,219,240 $ 5,075,293
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$ 248,364 71 0.11%$ 244,639 68 0.11%
Time Deposits 949,019 2,073 0.87% 976,600 1,927 0.79%
Interest Bearing Demand Deposits 1,634,898 1,460 0.36% 1,727,431 1,520 0.35%
Total Interest Bearing Deposits 2,832,281 3,604 0.51% 2,948,670 3,515 0.48%
Short-term Interest Bearing Liabilities 608,130 1,122 0.73% 385,858 906 0.94%
Long-term Interest Bearing Liabilities – FHLB Dallas 472,470 1,857 1.56% 492,296 1,874 1.53%
Subordinated Notes (5) 12,823 189 5.86% %
Long-term Debt (6) 60,234 430 2.84% 60,233 416 2.78%
Total Interest Bearing Liabilities 3,985,938 7,202 0.72% 3,887,057 6,711 0.69%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 702,539 682,360
Other Liabilities 55,783 43,360
Total Liabilities 4,744,260 4,612,777
SHAREHOLDERS’ EQUITY 474,980 462,516
Total Liabilities and Shareholders’ Equity$5,219,240 $ 5,075,293
NET INTEREST INCOME $ 38,438 $ 38,959
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.19% 3.35%
NET INTEREST SPREAD 3.06% 3.24%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,064 and $1,082 for the three months ended September 30, 2016 and June 30, 2016, respectively.
(3) Interest income includes taxable-equivalent adjustments of $3,444 and $3,499 for the three months ended September 30, 2016 and June 30, 2016, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) The unamortized debt issuance costs deducted from the carrying amount of the subordinated notes totaled approximately $220,000 for the three months ended September 30, 2016.
(6) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, our average balance sheets for the three months ended September 30, 2016 and June 30, 2016 reflect a decrease in long-term debt of $77,000 and $78,000, respectively.
Note: As of September 30, 2016 and June 30, 2016, loans on nonaccrual status totaled $8,536 and $11,767, 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.


March 31, 2016Three Months Ended
December 31, 2015
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$ 2,434,837 $ 28,793 4.76%$ 2,318,162 $ 25,865 4.43%
Loans Held For Sale 3,581 32 3.59% 2,740 30 4.34%
Securities:
Investment Securities (Taxable) (4) 41,659 214 2.07% 81,344 416 2.03%
Investment Securities (Tax-Exempt) (3) (4) 635,766 8,494 5.37% 637,993 8,645 5.38%
Mortgage-backed Securities (4) 1,454,343 9,391 2.60% 1,493,020 9,215 2.45%
Total Securities 2,131,768 18,099 3.41% 2,212,357 18,276 3.28%
FHLB stock and other investments, at cost 55,116 217 1.58% 53,643 75 0.55%
Interest Earning Deposits 51,246 70 0.55% 34,147 23 0.27%
Total Interest Earning Assets 4,676,548 47,211 4.06% 4,621,049 44,269 3.80%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 55,732 53,267
Bank Premises and Equipment 107,941 108,812
Other Assets 262,081 258,837
Less: Allowance for Loan Losses (20,088) (18,720)
Total Assets$ 5,082,214 $ 5,023,245
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$ 235,492 65 0.11%$ 232,561 61 0.10%
Time Deposits 915,316 1,723 0.76% 833,141 1,477 0.70%
Interest Bearing Demand Deposits 1,717,717 1,468 0.34% 1,594,109 1,117 0.28%
Total Interest Bearing Deposits 2,868,525 3,256 0.46% 2,659,811 2,655 0.40%
Short-term Interest Bearing Liabilities 413,985 696 0.68% 630,998 600 0.38%
Long-term Interest Bearing Liabilities – FHLB Dallas 566,825 2,039 1.45% 490,396 1,638 1.33%
Long-term Debt (5) 60,232 405 2.70% 60,231 375 2.47%
Total Interest Bearing Liabilities 3,909,567 6,396 0.66% 3,841,436 5,268 0.54%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 672,865 686,574
Other Liabilities 45,390 47,155
Total Liabilities 4,627,822 4,575,165
SHAREHOLDERS’ EQUITY 454,392 448,080
Total Liabilities and Shareholders’ Equity$ 5,082,214 $ 5,023,245
NET INTEREST INCOME $ 40,815 $ 39,001
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.51% 3.35%
NET INTEREST SPREAD 3.40% 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 $1,060 and $1,068 for the three months ended March 31, 2016 and December 31, 2015, respectively.
(3) Interest income includes taxable-equivalent adjustments of $3,139 and $3,237 for the three months ended March 31, 2016 and December 31, 2015, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, our average balance sheets for the three months ended March 31, 2016 and December 31, 2015 reflect a decrease in long-term debt of $79,000 and $80,000, respectively.
Note: As of March 31, 2016 and December 31, 2015, loans on nonaccrual status totaled $21,927 and $20,526, 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, 2015
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,200,241 $ 24,779 4.47%
Loans Held For Sale 5,327 52 3.87%
Securities:
Investment Securities (Taxable) (4) 86,105 475 2.19%
Investment Securities (Tax-Exempt) (3) (4) 638,767 8,750 5.43%
Mortgage-backed Securities (4) 1,441,129 8,318 2.29%
Total Securities 2,166,001 17,543 3.21%
FHLB stock and other investments, at cost 45,963 65 0.56%
Interest Earning Deposits 26,216 15 0.23%
Total Interest Earning Assets 4,443,748 42,454 3.79%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 49,285
Bank Premises and Equipment 110,028
Other Assets 262,956
Less: Allowance for Loan Losses (17,021)
Total Assets$4,848,996
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$ 232,903 60 0.10%
Time Deposits 833,962 1,360 0.65%
Interest Bearing Demand Deposits 1,600,454 1,065 0.26%
Total Interest Bearing Deposits 2,667,319 2,485 0.37%
Short-term Interest Bearing Liabilities 398,905 354 0.35%
Long-term Interest Bearing Liabilities – FHLB Dallas 527,591 1,720 1.29%
Long-term Debt (5) 60,229 369 2.43%
Total Interest Bearing Liabilities 3,654,044 4,928 0.54%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 715,326
Other Liabilities 41,606
Total Liabilities 4,410,976
SHAREHOLDERS’ EQUITY 438,020
Total Liabilities and Shareholders’ Equity$4,848,996
NET INTEREST INCOME $ 37,526
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.35%
NET INTEREST SPREAD 3.25%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustment of $1,044 for the three months ended September 30, 2015.
(3) Interest income includes taxable-equivalent adjustment of $3,199 for the three months ended September 30, 2015.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, our average balance sheet for the three months ended September 30, 2015 reflects a decrease in long-term debt of $82,000.
Note: As of September 30, 2015, loans on nonaccrual status totaled $20,988. 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, 2016 September 30, 2015
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
AVG
BALANCE
INTERESTAVG
YIELD/
RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,432,652 $ 82,818 4.55%$2,192,804 $ 74,606 4.55%
Loans Held For Sale 5,100 126 3.30% 3,675 125 4.55%
Securities:
Investment Securities (Taxable) (4) 41,708 572 1.83% 74,169 1,171 2.11%
Investment Securities (Tax-Exempt) (3) (4) 661,430 26,041 5.26% 637,110 26,336 5.53%
Mortgage-backed Securities (4) 1,465,923 28,156 2.57% 1,411,553 24,446 2.32%
Total Securities 2,169,061 54,769 3.37% 2,122,832 51,953 3.27%
FHLB stock and other investments, at cost 54,051 588 1.45% 44,204 223 0.67%
Interest Earning Deposits 55,378 220 0.53% 41,348 78 0.25%
Total Interest Earning Assets 4,716,242 138,521 3.92% 4,404,863 126,985 3.85%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 50,738 52,108
Bank Premises and Equipment 107,699 111,341
Other Assets 270,301 268,105
Less: Allowance for Loan Losses (19,136) (15,914)
Total Assets$5,125,844 $4,820,503
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$ 242,852 204 0.11%$ 232,326 172 0.10%
Time Deposits 946,986 5,723 0.81% 850,175 4,035 0.63%
Interest Bearing Demand Deposits 1,693,135 4,448 0.35% 1,666,718 3,300 0.26%
Total Interest Bearing Deposits 2,882,973 10,375 0.48% 2,749,219 7,507 0.37%
Short-term Interest Bearing Liabilities 469,831 2,724 0.77% 301,689 650 0.29%
Long-term Interest Bearing Liabilities – FHLB Dallas 510,392 5,770 1.51% 557,519 5,349 1.28%
Subordinated Notes (5) 4,305 189 5.86% %
Long-term Debt (6) 60,233 1,251 2.77% 60,228 1,085 2.41%
Total Interest Bearing Liabilities 3,927,734 20,309 0.69% 3,668,655 14,591 0.53%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 685,982 676,911
Other Liabilities 48,120 39,764
Total Liabilities 4,661,836 4,385,330
SHAREHOLDERS’ EQUITY 464,008 435,173
Total Liabilities and Shareholders’ Equity$5,125,844 $4,820,503
NET INTEREST INCOME $ 118,212 $ 112,394
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.35% 3.41%
NET INTEREST SPREAD 3.23% 3.32%


(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $3,206 and $3,141 for the nine months ended September 30, 2016 and 2015, respectively.
(3) Interest income includes taxable-equivalent adjustments of $10,082 and $9,276 for the nine months ended September 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) The unamortized debt issuance costs deducted from the carrying amount of the subordinated notes totaled approximately $74,000 for the nine months ended September 30, 2016.
(6) Represents issuance of junior subordinated debentures. In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, our average balance sheets for the nine months ended September 30, 2016 and 2015 reflect a decrease in long-term debt of $78,000 and $83,000, respectively.
Note: As of September 30, 2016 and 2015, loans on nonaccrual status totaled $8,536 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.

Source:Southside Bancshares, Inc.