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Southside Bancshares, Inc. Announces Financial Results for the Three Months and Year Ended December 31, 2016

TYLER, Texas, Jan. 27, 2017 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three months and year ended December 31, 2016.

Southside reported net income of $11.6 million for the three months ended December 31, 2016, a decrease of $0.1 million, or 1.0%, compared to $11.7 million for the same period in 2015. Net income for the year ended December 31, 2016 increased $5.4 million, or 12.2%, to $49.3 million, compared to $44.0 million for the same period in 2015.

Diluted earnings per common share were $0.43 and $0.44 for the three months ended December 31, 2016 and 2015, respectively, a decrease of $0.01, or 2.3%. For the year ended December 31, 2016, diluted earnings per common share increased $0.21, or 12.7%, to $1.86, compared to $1.65 for the same period in 2015.

The return on average shareholders’ equity for the year ended December 31, 2016 was 10.54%, compared to 10.04% for the same period in 2015. The return on average assets was 0.94% for the year ended December 31, 2016, compared to 0.90% for the same period in 2015.

“A 12.2% increase in net income for the year ended December 31, 2016 when compared to the prior year, resulted in record net income of $49.3 million, which highlights our financial performance for the year,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “During the fourth quarter ended December 31, 2016, we sold available for sale securities at a net loss of $2.7 million compared to a net gain of $0.2 million on the securities that were sold during the fourth quarter of 2015. Net income for the fourth quarter of 2016 decreased $0.1 million compared to the same period in 2015. Excluding sales of available for sale securities, net income during the fourth quarter of 2016 increased $1.8 million, or 15.2%, compared to the same period in 2015.”

“Other highlights for the year included $124.8 million, or 5.1% in loan growth, a decrease in nonperforming assets to total assets to 0.27% and the completion of a common stock offering that netted $76.0 million in additional capital.”

“Our loan pipeline is strong and reflects the potential for more consistent loan growth throughout 2017 than we have experienced during the prior two years. The DFW and Austin markets we serve are expected to continue to experience solid job growth during 2017 as businesses continue to relocate from other states and expand existing facilities,” Mr. Gibson concluded.

Loans and Deposits

For the year ended December 31, 2016, total loans increased by $124.8 million, or 5.1%, compared to December 31, 2015. The net increase in our loans was comprised of increases of $310.8 million of commercial real estate loans and $10.5 million of municipal loans, which were partially offset by decreases of $65.3 million of commercial loans, $58.1 million of construction loans, $54.9 million of loans to individuals, and $18.2 million of 1-4 family residential loans. Loans with oil and gas industry exposure totaled 1.09% of the loan portfolio at December 31, 2016.

Nonperforming assets decreased during the year ended December 31, 2016 by $17.4 million, or 53.5%, to $15.1 million, or 0.27% of total assets, compared to 0.63% of total assets at December 31, 2015.

During the year ended December 31, 2016, the allowance for loan losses decreased $1.8 million, or 9.2%, to $17.9 million, or 0.70% of total loans, compared to 0.81% of total loans at December 31, 2015, as a result of charge-offs of two large impaired commercial borrowing relationships partially offset by growth in the loan portfolio.

During the year ended December 31, 2016, deposits, net of brokered deposits, increased $127.4 million, or 3.8%, compared to December 31, 2015. During this period public fund deposits increased $76.8 million.

Net Interest Income for the Three Months Ended December 31, 2016

Net interest income decreased $0.1 million, or 0.2%, to $34.6 million for the three months ended December 31, 2016, compared to $34.7 million for the same period in 2015. The decrease in net interest income was the result of the increase in interest expense of $3.8 million associated with short- and long-term obligations and deposit expenses, which were partially offset by an increase in interest income of $3.7 million, which was primarily a result of the increase in the loan and securities portfolio, compared to the same period in 2015. For the three months ended December 31, 2016, our net interest spread decreased to 2.90%, compared to 3.26% for the same period in 2015, due to higher rates paid on interest-bearing liabilities along with a decrease in the yield on interest-earning assets. Our net interest margin decreased to 3.03% for the three months ended December 31, 2016, compared to 3.35% for the same period in 2015. The net interest spread and margin on a linked quarter basis decreased from 3.06% and 3.19%, respectively.

Net Interest Income for the Year Ended December 31, 2016

Net interest income increased $4.9 million, or 3.6%, to $139.6 million for the year ended December 31, 2016, compared to $134.7 million for the same period in 2015. The increase in net interest income was due to the increase in interest income of $14.4 million, or 9.3%, 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 $9.5 million. For the year ended December 31, 2016, our net interest spread decreased to 3.14%, compared to 3.31% for the same period in 2015, due to higher rates paid on interest-bearing liabilities, which offset the increase in the yield on interest-earning assets. Our net interest margin decreased to 3.26% for the year ended December 31, 2016, compared to 3.40% for the same period in 2015.

Net Income for the Three Months Ended December 31, 2016

Net income decreased $0.1 million, or 1.0%, for the three months ended December 31, 2016, to $11.6 million compared to the same period in 2015. The decrease was primarily the result of a $3.8 million increase in interest expense, a $2.1 million decrease in noninterest income, a $0.4 million increase in income tax expense, and a $0.1 million increase in provision for loan losses, partially offset by a $3.7 million increase in interest income and a $2.6 million decrease in noninterest expense.

Noninterest income decreased $2.1 million, or 23.8%, for the three months ended December 31, 2016 compared to the same period in 2015, due to a net loss on sale of securities available for sale which were partially offset by increases in deposit services income and other noninterest income.

Noninterest expense decreased $2.6 million, or 9.0%, for the three months ended December 31, 2016, compared to the same period in 2015, due to cost containment in almost all noninterest expense categories. Telephone and communications expense increased during the three months ended December 31, 2016, compared to the same period in 2015, due to a one-time vendor credit received in December 2015.

Net Income for the Year Ended December 31, 2016

Net income increased $5.4 million, or 12.2%, for the year ended December 31, 2016, to $49.3 million compared to the same period in 2015. The increase was primarily the result of a $14.4 million increase in interest income, a $3.4 million decrease in noninterest expense, and a $1.5 million increase in noninterest income, partially offset by a $9.5 million increase in interest expense, a $3.0 million increase in income tax expense and a $1.4 million increase in provision for loan losses.

Noninterest income increased $1.5 million, or 4.0%, for the year ended December 31, 2016 compared to the same period in 2015, primarily due to increases in deposit services income, other noninterest income and gain on sale of loans, partially offset by a net loss on sale of securities available for sale. Increases in other noninterest income were primarily comprised of increases in other investment income and mortgage servicing fee income.

Noninterest expense decreased $3.4 million, or 3.0%, for the year ended December 31, 2016, compared to the same period in 2015, primarily due to decreases in salaries and employee benefits expense, software and data processing expense, FDIC insurance and other noninterest expense, partially offset by increases in professional fees and occupancy expense.

Conference Call

Southside's management team will host a conference call to discuss its fourth quarter and year end 2016 financial results on Friday, January 27, 2017 at 9:00 am CST. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 46149540 or by identifying “Southside Bancshares, Inc., Fourth Quarter and Year End 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 CST January 27, 2017 through February 8, 2017 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 Footnotes 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 $5.6 billion in assets as of December 31, 2016, that owns 100% of Southside Bank. Southside Bank currently has 60 banking centers in Texas and operates a network of 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
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
ASSETS
Cash and due from banks$59,363 $54,255 $45,663 $52,324 $54,288
Interest earning deposits102,251 144,833 18,450 16,130 26,687
Federal funds sold8,040
Securities available for sale, at estimated fair value1,479,600 1,622,128 1,416,335 1,332,381 1,460,492
Securities held to maturity, at carrying value937,487 775,682 784,925 784,579 784,296
Federal Home Loan Bank stock, at cost61,084 51,901 47,702 47,550 51,047
Loans held for sale7,641 5,301 5,883 4,971 3,811
Loans2,556,537 2,483,641 2,384,321 2,443,231 2,431,753
Less: Allowance for loan losses(17,911) (15,993) (14,908) (21,799) (19,736)
Net loans2,538,626 2,467,648 2,369,413 2,421,432 2,412,017
Premises & equipment, net106,003 106,777 107,242 107,556 107,929
Goodwill91,520 91,520 91,520 91,520 91,520
Other intangible assets, net4,608 5,060 5,534 6,029 6,548
Bank owned life insurance97,775 97,002 96,375 95,718 95,080
Other assets69,769 42,796 45,886 58,743 68,281
Total assets$5,563,767 $5,464,903 $5,034,928 $5,018,933 $5,161,996
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$704,013 $747,270 $679,831 $698,695 $672,470
Interest bearing deposits2,829,063 2,834,117 2,890,418 2,920,673 2,782,937
Total deposits3,533,076 3,581,387 3,570,249 3,619,368 3,455,407
Short-term obligations873,615 720,634 385,717 259,646 647,836
Long-term obligations601,464 621,640 559,071 622,222 562,512
Other liabilities37,338 68,682 47,591 60,121 52,179
Total liabilities5,045,493 4,992,343 4,562,628 4,561,357 4,717,934
Shareholders' equity518,274 472,560 472,300 457,576 444,062
Total liabilities and shareholders' equity$5,563,767 $5,464,903 $5,034,928 $5,018,933 $5,161,996


At or For the Three Months Ended
2016 2015
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
Income Statement:
Total interest income$43,680 $41,132 $41,089 $43,012 $39,964
Total interest expense9,039 7,202 6,711 6,396 5,267
Net interest income34,641 33,930 34,378 36,616 34,697
Provision for loan losses2,065 1,631 3,768 2,316 1,951
Net interest income after provision for loan losses32,576 32,299 30,610 34,300 32,746
Noninterest income
Deposit services5,183 5,335 5,099 5,085 4,990
Net (loss) gain on sale of securities available for sale(2,676) 2,343 728 2,441 204
Gain on sale of loans461 818 873 643 578
Trust income900 867 869 855 871
Bank owned life insurance income649 656 647 674 640
Brokerage services466 551 535 575 555
Other1,730 1,162 619 1,323 977
Total noninterest income6,713 11,732 9,370 11,596 8,815
Noninterest expense
Salaries and employee benefits16,194 15,203 14,849 17,732 16,420
Occupancy expense2,825 4,569 2,993 3,335 3,263
Advertising, travel & entertainment648 588 722 685 726
ATM and debit card expense820 868 736 712 1,086
Professional fees982 1,148 1,478 1,338 1,517
Software and data processing expense687 736 739 749 771
Telephone and communications572 407 468 484 372
FDIC insurance215 643 645 638 619
FHLB prepayment fees 148
Other2,934 4,263 3,035 3,734 3,657
Total noninterest expense25,877 28,425 25,813 29,407 28,431
Income before income tax expense13,412 15,606 14,167 16,489 13,130
Income tax expense1,839 2,741 2,772 2,973 1,438
Net income$11,573 $12,865 $11,395 $13,516 $11,692
Common share data:
Weighted-average basic shares outstanding26,866 26,262 26,230 26,449 26,653
Weighted-average diluted shares outstanding27,049 26,415 26,349 26,519 26,745
Shares outstanding end of period28,543 26,278 26,251 26,222 26,670
Net income per common share
Basic$0.43 $0.49 $0.43 $0.51 $0.44
Diluted0.43 0.49 0.43 0.51 0.44
Book value per common share18.16 17.98 17.99 17.46 16.66
Cash dividend paid per common share0.30 0.24 0.24 0.23 0.31
Selected Performance Ratios:
Return on average assets0.83% 0.98% 0.90% 1.07% 0.92%
Return on average shareholders’ equity9.56 10.78 9.91 11.96 10.35
Average yield on interest earning assets3.73 3.78 3.93 4.06 3.80
Average rate on interest bearing liabilities0.83 0.72 0.69 0.66 0.54
Net interest spread2.90 3.06 3.24 3.40 3.26
Net interest margin3.03 3.19 3.35 3.51 3.35
Average interest earnings assets to average interest bearing liabilities119.88 120.40 120.21 119.62 120.29
Noninterest expense to average total assets1.85 2.17 2.05 2.33 2.25
Efficiency ratio52.00 53.88 52.85 57.47 58.45

At or For the
Year Ended
December 31,
2016 2015
Income Statement:
Total interest income$168,913 $154,532
Total interest expense29,348 19,854
Net interest income139,565 134,678
Provision for loan losses9,780 8,343
Net interest income after provision for loan losses129,785 126,335
Noninterest income
Deposit services20,702 20,112
Net gain on sale of securities available for sale2,836 3,660
Gain on sale of loans2,795 2,082
Trust income3,491 3,419
Bank owned life insurance income2,626 2,623
Brokerage services2,127 2,206
Other4,834 3,793
Total noninterest income39,411 37,895
Noninterest expense
Salaries and employee benefits63,978 67,221
Occupancy expense13,722 12,883
Advertising, travel & entertainment2,643 2,708
ATM and debit card expense3,136 3,132
Professional fees4,946 3,877
Software and data processing expense2,911 3,858
Telephone and communications1,931 1,978
FDIC insurance2,141 2,510
FHLB prepayment fees148
Other13,966 14,787
Total noninterest expense109,522 112,954
Income before income tax expense59,674 51,276
Income tax expense10,325 7,279
Net income$49,349 $43,997
Common share data:
Weighted-average basic shares outstanding26,453 26,621
Weighted-average diluted shares outstanding26,578 26,711
Net income per common share
Basic$1.86 $1.65
Diluted1.86 1.65
Book value per common share18.16 16.66
Cash dividend paid per common share1.01 1.00
Selected Performance Ratios:
Return on average assets0.94% 0.90%
Return on average shareholders’ equity10.54
10.04
Average yield on interest earning assets3.87
3.84
Average yield on interest bearing liabilities0.73
0.53
Net interest spread3.14
3.31
Net interest margin3.26
3.40
Average interest earnings assets to average interest bearing liabilities120.02
120.12
Noninterest expense to average total assets2.09
2.32
Efficiency ratio54.08
59.32


Southside Bancshares, Inc.
Selected Financial Data (unaudited)
(dollars in thousands)
Three Months Ended
2016 2015
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
Nonperforming assets$15,105 $16,008 $24,510 $34,046 $32,480
Nonaccrual loans (1)8,280 8,536 11,767 21,927 20,526
Accruing loans past due more than 90 days (1)6 1 6 7 3
Restructured loans (2)6,431 7,193 12,477 11,762 11,143
Other real estate owned339 237 237 265 744
Repossessed assets49 41 23 85 64
Asset Quality Ratios:
Nonaccruing loans to total loans0.32% 0.34% 0.49% 0.90% 0.84%
Allowance for loan losses to nonaccruing loans216.32 187.36 126.69 99.42 96.15
Allowance for loan losses to nonperforming assets118.58 99.91 60.82 64.03 60.76
Allowance for loan losses to total loans0.70 0.64 0.63 0.89 0.81
Nonperforming assets to total assets0.27 0.29 0.49 0.68 0.63
Net charge-offs to average loans0.02 0.09 1.77 0.04 0.11
Capital Ratios:
Shareholders’ equity to total assets9.32 8.65 9.38 9.12 8.60
Average shareholders’ equity to average total assets8.66 9.10 9.11 8.94 8.92

(1) Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $3.1 million, $3.2 million, $8.3 million, $7.4 million, and $7.5 million in PCI loans restructured as of December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively.

Loan Portfolio Composition

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

Three Months Ended
2016 2015
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
Real Estate Loans:
Construction$380,175 $466,323 $425,595 $464,750 $438,247
1-4 Family Residential637,239 644,746 633,400 644,826 655,410
Commercial945,978 759,795 694,272 657,962 635,210
Commercial Loans177,265 191,154 197,896 233,857 242,527
Municipal Loans298,583 293,949 292,909 286,217 288,115
Loans to Individuals117,297 127,674 140,249 155,619 172,244
Total Loans$2,556,537 $2,483,641 $2,384,321 $2,443,231 $2,431,753

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
December 31, 2016 September 30, 2016
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,512,820 $27,835 4.41% $2,436,349 $26,750 4.37%
Loans Held For Sale4,845 36 2.96% 6,718 54 3.20%
Securities:
Investment Securities (Taxable) (4)115,057 485 1.68% 61,238 251 1.63%
Investment Securities (Tax-Exempt) (3) (4)812,771 10,352 5.07% 690,635 8,911 5.13%
Mortgage-backed Securities (4)1,520,045 9,294 2.43% 1,492,271 9,399 2.51%
Total Securities2,447,873 20,131 3.27% 2,244,144 18,561 3.29%
FHLB Stock, at cost and Other Investments62,087 210 1.35% 54,085 186 1.37%
Interest Earning Deposits134,786 165 0.49% 57,598 89 0.61%
Federal Funds Sold2,972 5 0.67%
Total Interest Earning Assets5,165,383 48,382 3.73% 4,798,894 45,640 3.78%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks52,415 49,418
Bank Premises and Equipment106,520 107,318
Other Assets252,697 278,599
Less: Allowance for Loan Losses(16,467) (14,989)
Total Assets$5,560,548 $5,219,240
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$250,706 76 0.12% $248,364 71 0.11%
Time Deposits926,021 2,261 0.97% 949,019 2,073 0.87%
Interest Bearing Demand Deposits1,646,535 1,543 0.37% 1,634,898 1,460 0.36%
Total Interest Bearing Deposits2,823,262 3,880 0.55% 2,832,281 3,604 0.51%
Short-term Interest Bearing Liabilities869,398 1,428 0.65% 608,130 1,122 0.73%
Long-term Interest Bearing Liabilities – FHLB Dallas457,754 1,837 1.60% 472,470 1,857 1.56%
Subordinated Notes (5)98,011 1,439 5.84% 12,823 189 5.86%
Long-term Debt (6)60,235 455 3.01% 60,234 430 2.84%
Total Interest Bearing Liabilities4,308,660 9,039 0.83% 3,985,938 7,202 0.72%
NONINTEREST BEARING LIABILITIES:
Demand Deposits717,599 702,539
Other Liabilities52,714 55,783
Total Liabilities5,078,973 4,744,260
SHAREHOLDERS’ EQUITY481,575 474,980
Total Liabilities and Shareholders’ Equity$5,560,548 $5,219,240
NET INTEREST INCOME $39,343 $38,438
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.03% 3.19%
NET INTEREST SPREAD 2.90% 3.06%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,045 and $1,064 for the three months ended December 31, 2016 and September 30, 2016, respectively. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustments of $3,657 and $3,444 for the three months ended December 31, 2016 and September 30, 2016, respectively. See “Non-GAAP Financial Measures.”
(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 $2.0 million and $220,000 for the three months ended December 31, 2016 and September 30, 2016, respectively.
(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 December 31, 2016 and September 30, 2016 reflect a decrease in long-term debt of $76,000 and $77,000, respectively.

Note: As of December 31, 2016 and September 30, 2016, loans on nonaccrual status totaled $8,280 and $8,536, 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, 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, at cost and Other Investments52,952 185 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 Assets270,141 262,081
Less: Allowance for Loan Losses(22,377) (20,088)
Total Assets$5,075,293 $5,082,214
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)60,233 416 2.78% 60,232 405 2.70%
Total Interest Bearing Liabilities3,887,057 6,711 0.69% 3,909,567 6,396 0.66%
NONINTEREST BEARING LIABILITIES:
Demand Deposits682,360 672,865
Other Liabilities43,360 45,390
Total Liabilities4,612,777 4,627,822
SHAREHOLDERS’ EQUITY462,516 454,392
Total Liabilities and Shareholders’ Equity$5,075,293 $5,082,214
NET INTEREST INCOME $38,959 $40,815
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. See “Non-GAAP Financial Measures.”
(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. See “Non-GAAP Financial Measures.”
(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 June 30, 2016 and March 31, 2016 reflect a decrease in long-term debt of $78,000 and $79,000, respectively.

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
AVG
AVG YIELD/
BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,318,162 $25,865 4.43%
Loans Held For Sale2,740 30 4.34%
Securities:
Investment Securities (Taxable) (4)81,344 416 2.03%
Investment Securities (Tax-Exempt) (3) (4)637,993 8,645 5.38%
Mortgage-backed Securities (4)1,493,020 9,215 2.45%
Total Securities2,212,357 18,276 3.28%
FHLB Stock, at cost and Other Investments
53,643 75 0.55%
Interest Earning Deposits34,147 23 0.27%
Total Interest Earning Assets4,621,049 44,269 3.80%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks53,267
Bank Premises and Equipment108,812
Other Assets258,837
Less: Allowance for Loan Losses(18,720)
Total Assets$5,023,245
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$232,561 61 0.10%
Time Deposits833,141 1,477 0.70%
Interest Bearing Demand Deposits1,594,109 1,117 0.28%
Total Interest Bearing Deposits2,659,811 2,655 0.40%
Short-term Interest Bearing Liabilities630,998 600 0.38%
Long-term Interest Bearing Liabilities – FHLB Dallas490,396 1,638 1.33%
Long-term Debt (5)60,231 374 2.46%
Total Interest Bearing Liabilities3,841,436 5,267 0.54%
NONINTEREST BEARING LIABILITIES:
Demand Deposits686,574
Other Liabilities47,155
Total Liabilities4,575,165
SHAREHOLDERS’ EQUITY448,080
Total Liabilities and Shareholders’ Equity$5,023,245
NET INTEREST INCOME $39,002
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.35%
NET INTEREST SPREAD 3.26%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustment of $1,068 for the three months ended December 31, 2015. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustment of $3,237 for the three months ended December 31, 2015. See “Non-GAAP Financial Measures.”
(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 December 31, 2015 reflects a decrease in long-term debt of $80,000.

Note: As of December 31, 2015, loans on nonaccrual status totaled $20,526. 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)
Years Ended
December 31, 2016 December 31, 2015
AVG AVG
AVG YIELD/ AVG YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)$2,452,803 $110,653 4.51% $2,224,401 $100,471 4.52%
Loans Held For Sale5,036 162 3.22% 3,439 155 4.51%
Securities:
Investment Securities (Taxable) (4)60,145 1,057 1.76% 75,977 1,587 2.09%
Investment Securities (Tax-Exempt) (3) (4)699,472 36,393 5.20% 637,333 34,981 5.49%
Mortgage-backed Securities (4)1,479,528 37,450 2.53% 1,432,087 33,661 2.35%
Total Securities2,239,145 74,900 3.35% 2,145,397 70,229 3.27%
FHLB Stock, at cost and Other Investments
56,071 798 1.42% 46,584 298 0.64%
Interest Earning Deposits75,339 385 0.51% 39,533 101 0.26%
Federal Funds Sold747 5 0.67%
Total Interest Earning Assets4,829,141 186,903 3.87% 4,459,354 171,254 3.84%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks51,160 52,400
Bank Premises and Equipment107,402 110,704
Other Assets265,876 265,769
Less: Allowance for Loan Losses(18,465) (16,621)
Total Assets$5,235,114 $4,871,606
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits$244,826 280 0.11% $232,385 233 0.10%
Time Deposits941,716 7,984 0.85% 845,882 5,512 0.65%
Interest Bearing Demand Deposits1,681,422 5,991 0.36% 1,648,416 4,417 0.27%
Total Interest Bearing Deposits2,867,964 14,255 0.50% 2,726,683 10,162 0.37%
Short-term Interest Bearing Liabilities570,269 4,152 0.73% 384,694 1,250 0.32%
Long-term Interest Bearing Liabilities – FHLB Dallas497,160 7,607 1.53% 540,600 6,987 1.29%
Subordinated Notes (5)27,860 1,628 5.84%
Long-term Debt (6)60,233 1,706 2.83% 60,229 1,455 2.42%
Total Interest Bearing Liabilities4,023,486 29,348 0.73% 3,712,206 19,854 0.53%
NONINTEREST BEARING LIABILITIES:
Demand Deposits693,929 679,346
Other Liabilities49,275 41,627
Total Liabilities4,766,690 4,433,179
SHAREHOLDERS’ EQUITY468,424 438,427
Total Liabilities and Shareholders’ Equity$5,235,114 $4,871,606
NET INTEREST INCOME $157,555 $151,400
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.26% 3.40%
NET INTEREST SPREAD 3.14% 3.31%

(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $4,251 and $4,209 for the years ended December 31, 2016 and 2015, respectively. See “Non-GAAP Financial Measures.”
(3) Interest income includes taxable-equivalent adjustments of $13,739 and $12,513 for the years ended December 31, 2016 and 2015, respectively. See “Non-GAAP Financial Measures.”
(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 $555,000 for the year ended December 31, 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 years ended December 31, 2016 and 2015 reflect a decrease in long-term debt of $77,000 and $82,000, respectively.

Note: As of December 31, 2016 and 2015, loans on nonaccrual status totaled $8,280 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.

Source:Southside Bancshares, Inc.