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Southside Bancshares, Inc. Announces Financial Results for the Three Months Ended March 31, 2017

TYLER, Texas, April 28, 2017 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three months ended March 31, 2017.

Southside reported record net income of $15.0 million for the three months ended March 31, 2017, an increase of $1.5 million, or 10.9%, compared to $13.5 million for the same period in 2016. Diluted earnings per common share were $0.52 for the three months ended March 31, 2017, an increase of $0.01, or 2.0%, compared to $0.51 for the three months ended March 31, 2016.

The return on average shareholders’ equity for the three months ended March 31, 2017 was 11.57%, compared to 11.96% for the same period in 2016. The return on average assets was 1.08% for the three months ended March 31, 2017, compared to 1.07% for the same period in 2016.

“Outstanding first quarter financial results should provide an excellent foundation on which to build 2017,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “Our first quarter results included record net income, a five basis point increase in the net interest margin on a linked quarter basis, an increase in net interest income on a linked quarter basis, a 51.60% efficiency ratio reflective of our ongoing cost containment initiative and a continued decrease in our ratio of nonperforming assets to total assets to 0.25%.”

“Notwithstanding the level of payoffs during the first quarter, our loan pipeline remains healthy and we anticipate loan growth during the remainder of 2017,” Mr. Gibson concluded.

Loans and Deposits

For the three months ended March 31, 2017, total loans decreased by $17.6 million, or 0.7%, compared to December 31, 2016. The net decrease in our loans was comprised primarily of decreases of $17.8 million of construction loans, $14.4 million of 1-4 family residential loans, $12.3 million of loans to individuals and $1.2 million of municipal loans, which were partially offset by increases in commercial real estate loans of $28.3 million. Loans with oil and gas industry exposure totaled 1.14% of the loan portfolio at March 31, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the three months ended March 31, 2017 by $1.0 million, or 6.8%, to $14.1 million, or 0.25% of total assets, compared to 0.27% of total assets at December 31, 2016.

During the three months ended March 31, 2017, the allowance for loan losses increased modestly by $0.6 million, or 3.2%, to $18.5 million, or 0.73% of total loans, compared to 0.70% of total loans at December 31, 2016.

During the three months ended March 31, 2017, deposits, net of brokered deposits, increased $87.3 million, or 2.5%, compared to December 31, 2016.

Net Interest Income for the Three Months Ended March 31, 2017

Net interest income decreased $1.3 million, or 3.6%, to $35.3 million for the three months ended March 31, 2017, compared to $36.6 million for the same period in 2016. The decrease in net interest income was the result of the increase in interest expense of $3.2 million associated with short- and long-term obligations and deposits, which were partially offset by an increase in interest income of $1.9 million, which was a result of the increase in interest income from the securities portfolio, compared to the same period in 2016. For the three months ended March 31, 2017, our net interest spread decreased to 2.93%, compared to 3.40% for the same period in 2016. Our net interest margin decreased to 3.08% for the three months ended March 31, 2017, compared to 3.51% for the same period in 2016. Both the decrease in net interest margin and spread was due to higher rates paid on interest bearing liabilities along with a decrease in the yield on interest earning assets. The decrease in yield on interest earning assets was partially due to lower purchase accretion in 2017 and the $1.3 million recovery of interest income on the payoff of a long-term nonaccrual loan during the first quarter of 2016. The increase in rates paid on interest bearing liabilities was a direct result of the subordinated debt issuance, and to a lesser extent, the decrease in the purchase accretion on the certificate of deposit premium, both having occurred during the third quarter of 2016. The net interest spread and margin on a linked quarter basis increased from 2.90% and 3.03%, respectively, for the three months ended December 31,2016, to 2.93% and 3.08% respectively, for the three months ended March 31,2017.

Net Income for the Three Months Ended March 31, 2017

Net income increased $1.5 million, or 10.9%, for the three months ended March 31, 2017, to $15.0 million compared to the same period in 2016. The increase was primarily the result of a $1.9 million increase in interest income, a $1.2 million decrease in provision for loan losses and a $3.5 million decrease in noninterest expense, partially offset by a $3.2 million increase in interest expense and a $1.9 million decrease in noninterest income.

Noninterest income decreased $1.9 million, or 16.6%, for the three months ended March 31, 2017 compared to the same period in 2016, due primarily to the decrease in net gain on sale of securities available for sale.

Noninterest expense decreased $3.5 million, or 12.1%, for the three months ended March 31, 2017, compared to the same period in 2016, due primarily to decreases in salaries and employee benefits, occupancy expense, professional fees and other noninterest expense. The decrease in salaries and employee benefits is due to a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the three months ended March 31, 2016. Occupancy expense decreased due to lower rent expense. Professional fees decreased due to decreases in consulting fees associated with the process improvement and re-branding efforts initiated in January 2016. Other noninterest expense decreased primarily due to a reduction in the provision expense for losses on unfunded loan commitments, losses on other real estate owned, check card losses and a decrease in core deposits intangible amortization expense.

Conference Call

Southside's management team will host a conference call to discuss its first quarter 2017 financial results on Friday, April 28, 2017 at 9:00 am CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 95297061 or by identifying “Southside Bancshares, Inc., First Quarter 2017 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 April 28, 2017 through May 10, 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 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.

Efficiency ratio. The efficiency ratio, calculated 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 $5.66 billion in assets as of March 31, 2017, 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, 2016, 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
2017 2016
March 31, Dec. 31, Sept. 30, June 30, March 31,
ASSETS
Cash and due from banks$54,345 $59,363 $54,255 $45,663 $52,324
Interest earning deposits185,289 102,251 144,833 18,450 16,130
Federal funds sold7,360 8,040
Securities available for sale, at estimated fair value1,444,043 1,479,600 1,622,128 1,416,335 1,332,381
Securities held to maturity, at carrying value929,793 937,487 775,682 784,925 784,579
Federal Home Loan Bank stock, at cost61,305 61,084 51,901 47,702 47,550
Loans held for sale5,303 7,641 5,301 5,883 4,971
Loans2,538,918 2,556,537 2,483,641 2,384,321 2,443,231
Less: Allowance for loan losses(18,485) (17,911) (15,993) (14,908) (21,799)
Net loans2,520,433 2,538,626 2,467,648 2,369,413 2,421,432
Premises & equipment, net105,327 106,003 106,777 107,242 107,556
Goodwill91,520 91,520 91,520 91,520 91,520
Other intangible assets, net4,177 4,608 5,060 5,534 6,029
Bank owned life insurance98,377 97,775 97,002 96,375 95,718
Other assets148,977 69,769 42,796 45,886 58,743
Total assets$5,656,249 $5,563,767 $5,464,903 $5,034,928 $5,018,933
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$753,224 $704,013 $747,270 $679,831 $698,695
Interest bearing deposits2,952,072 2,829,063 2,834,117 2,890,418 2,920,673
Total deposits3,705,296 3,533,076 3,581,387 3,570,249 3,619,368
Short-term obligations960,730 873,615 720,634 385,717 259,646
Long-term obligations411,310 601,464 621,640 559,071 622,222
Other liabilities47,447 37,338 68,682 47,591 60,121
Total liabilities5,124,783 5,045,493 4,992,343 4,562,628 4,561,357
Shareholders' equity531,466 518,274 472,560 472,300 457,576
Total liabilities and shareholders' equity$5,656,249 $5,563,767 $5,464,903 $5,034,928 $5,018,933


At or For the Three Months Ended
2017 2016
March 31, Dec. 31, Sept. 30, June 30, March 31,
Income Statement:
Total interest income$44,888 $43,680 $41,132 $41,089 $43,012
Total interest expense9,608 9,039 7,202 6,711 6,396
Net interest income35,280 34,641 33,930 34,378 36,616
Provision for loan losses1,098 2,065 1,631 3,768 2,316
Net interest income after provision for loan losses34,182 32,576 32,299 30,610 34,300
Noninterest income
Deposit services5,114 5,183 5,335 5,099 5,085
Net gain (loss) on sale of securities available for sale322 (2,676) 2,343 728 2,441
Gain on sale of loans701 461 818 873 643
Trust income890 900 867 869 855
Bank owned life insurance income634 649 656 647 674
Brokerage services547 466 551 535 575
Other1,465 1,730 1,162 619 1,323
Total noninterest income9,673 6,713 11,732 9,370 11,596
Noninterest expense
Salaries and employee benefits15,919 16,194 15,203 14,849 17,732
Occupancy expense2,863 2,825 4,569 2,993 3,335
Advertising, travel & entertainment583 648 588 722 685
ATM and debit card expense927 820 868 736 712
Professional fees939 982 1,148 1,478 1,338
Software and data processing expense725 687 736 739 749
Telephone and communications526 572 407 468 484
FDIC insurance441 215 643 645 638
FHLB prepayment fees 148
Other2,935 2,934 4,263 3,035 3,734
Total noninterest expense25,858 25,877 28,425 25,813 29,407
Income before income tax expense17,997 13,412 15,606 14,167 16,489
Income tax expense3,008 1,839 2,741 2,772 2,973
Net income$14,989 $11,573 $12,865 $11,395 $13,516
Common share data:
Weighted-average basic shares outstanding28,569 26,866 26,262 26,230 26,449
Weighted-average diluted shares outstanding28,777 27,049 26,415 26,349 26,519
Shares outstanding end of period28,587 28,543 26,278 26,251 26,222
Net income per common share
Basic$0.52 $0.43 $0.49 $0.43 $0.51
Diluted0.52 0.43 0.49 0.43 0.51
Book value per common share18.59 18.16 17.98 17.99 17.46
Cash dividend paid per common share0.25 0.30 0.24 0.24 0.23
Selected Performance Ratios:
Return on average assets1.08% 0.83% 0.98% 0.90% 1.07%
Return on average shareholders’ equity11.57 9.56 10.78 9.91 11.96
Average yield on interest earning assets3.82 3.73 3.78 3.93 4.06
Average rate on interest bearing liabilities0.89 0.83 0.72 0.69 0.66
Net interest spread2.93 2.90 3.06 3.24 3.40
Net interest margin3.08 3.03 3.19 3.35 3.51
Average interest earnings assets to average interest bearing liabilities120.04 119.88 120.40 120.21 119.62
Noninterest expense to average total assets1.87 1.85 2.17 2.05 2.33
Efficiency ratio (1)51.60 52.00 53.88 52.85 57.47


(1)See “Non-GAAP Financial Measures.”


Southside Bancshares, Inc.
Selected Financial Data (unaudited)
(dollars in thousands)
Three Months Ended
2017 2016
March 31, Dec. 31, Sept. 30, June 30, March 31,
Nonperforming assets:$14,079 $15,105 $16,008 $24,510 $34,046
Nonaccrual loans (1)7,261 8,280 8,536 11,767 21,927
Accruing loans past due more than 90 days (1)1 6 1 6 7
Restructured loans (2)6,424 6,431 7,193 12,477 11,762
Other real estate owned367 339 237 237 265
Repossessed assets26 49 41 23 85
Asset Quality Ratios:
Nonaccruing loans to total loans0.29% 0.32% 0.34% 0.49% 0.90%
Allowance for loan losses to nonaccruing loans254.58 216.32 187.36 126.69 99.42
Allowance for loan losses to nonperforming assets131.29 118.58 99.91 60.82 64.03
Allowance for loan losses to total loans0.73 0.70 0.64 0.63 0.89
Nonperforming assets to total assets0.25 0.27 0.29 0.49 0.68
Net charge-offs to average loans0.08 0.02 0.09 1.77 0.04
Capital Ratios:
Shareholders’ equity to total assets9.40 9.32 8.65 9.38 9.12
Average shareholders’ equity to average total assets9.36 8.66 9.10 9.11 8.94


(1)Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $3.0 million, $3.1 million, $3.2 million, $8.3 million, and $7.4 million in PCI loans restructured as of March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, and March 31, 2016, respectively.


Loan Portfolio Composition

The following table sets forth loan totals by category for the periods presented:
Three Months Ended
2017 2016
March 31, Dec. 31, Sept. 30, June 30, March 31,
Real Estate Loans:
Construction$362,367 $380,175 $466,323 $425,595 $464,750
1-4 Family Residential622,881 637,239 644,746 633,400 644,826
Commercial974,307 945,978 759,795 694,272 657,962
Commercial Loans176,908 177,265 191,154 197,896 233,857
Municipal Loans297,417 298,583 293,949 292,909 286,217
Loans to Individuals105,038 117,297 127,674 140,249 155,619
Total Loans$2,538,918 $2,556,537 $2,483,641 $2,384,321 $2,443,231

RESULTS OF OPERATIONS

The “Average Balances with Average Yields and Rates” tables that follow show average earning assets and interest bearing liabilities together with the average yield on the earning assets and the average rate of the interest bearing liabilities (dollars in thousands).

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
March 31, 2017 December 31, 2016
Avg Balance Interest Avg
Yield/
Rate
Avg Balance Interest Avg
Yield/
Rate
ASSETS
Loans (1) (2)$2,549,230 $28,241 4.49% $2,512,820 $27,835 4.41%
Loans held for sale7,023 48 2.77% 4,845 36 2.96%
Securities:
Investment securities (taxable) (4)86,511 377 1.77% 115,057 485 1.68%
Investment securities (tax-exempt) (3) (4)779,772 9,929 5.16% 812,771 10,352 5.07%
Mortgage-backed and related securities (4)1,570,510 10,045 2.59% 1,520,045 9,294 2.43%
Total securities2,436,793 20,351 3.39% 2,447,873 20,131 3.27%
FHLB stock, at cost, and other investments66,547 298 1.82% 62,087 210 1.35%
Interest earning deposits162,235 346 0.86% 134,786 165 0.49%
Federal funds sold7,217 14 0.79% 2,972 5 0.67%
Total earning assets5,229,045 49,298 3.82% 5,165,383 48,382 3.73%
Cash and due from banks53,528 52,415
Accrued interest and other assets350,729 359,217
Less: Allowance for loan losses(18,130) (16,467)
Total assets$5,615,172 $5,560,548
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$252,744 92 0.15% $250,706 76 0.12%
Time deposits927,610 2,227 0.97% 926,021 2,261 0.97%
Interest bearing demand deposits1,707,996 1,962 0.47% 1,646,535 1,543 0.37%
Total interest bearing deposits2,888,350 4,281 0.60% 2,823,262 3,880 0.55%
Short-term interest bearing liabilities1,007,546 2,065 0.83% 869,398 1,428 0.65%
Long-term interest bearing liabilities – FHLB Dallas301,775 1,402 1.88% 457,754 1,837 1.60%
Subordinated notes (5)98,117 1,393 5.76% 98,011 1,439 5.84%
Long-term debt (6)60,237 467 3.14% 60,235 455 3.01%
Total interest bearing liabilities4,356,025 9,608 0.89% 4,308,660 9,039 0.83%
Noninterest bearing deposits693,729 717,599
Accrued expenses and other liabilities39,960 52,714
Total liabilities5,089,714 5,078,973
Shareholders’ equity525,458 481,575
Total liabilities and shareholders’ equity$5,615,172 $5,560,548
Net interest income $39,690 $39,343
Net interest margin on average earning assets 3.08% 3.03%
Net interest spread 2.93% 2.90%


(1)Interest on loans includes net fees on loans that are not material in amount.
(2)Interest income includes taxable-equivalent adjustments of $1,035 and $1,045 for the three months ended March 31, 2017 and December 31, 2016, respectively. See “Non-GAAP Financial Measures.”
(3)Interest income includes taxable-equivalent adjustments of $3,375 and $3,657 for the three months ended March 31, 2017 and December 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)The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $1.9 million and $2.0 million for the three months ended March 31, 2017 and December 31, 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 March 31, 2017 and December 31, 2016 reflect a decrease in long-term debt of $74,000 and $76,000, respectively.

Note: As of March 31, 2017 and December 31, 2016, loans totaling $7,261 and $8,280, respectively, were on nonaccrual status. 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, 2016 June 30, 2016
Avg Balance Interest Avg
Yield/
Rate
Avg Balance Interest Avg
Yield/
Rate
ASSETS
Loans (1) (2)$2,436,349 $26,750 4.37% $2,426,733 $27,275 4.52%
Loans held for sale6,718 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 and related securities (4)1,492,271 9,399 2.51% 1,450,868 9,366 2.60%
Total securities2,244,144 18,561 3.29% 2,130,446 18,109 3.42%
FHLB stock, at cost, and other investments54,085 186 1.37% 52,952 185 1.41%
Interest earning deposits57,598 89 0.61% 57,493 61 0.43%
Total earning assets4,798,894 45,640 3.78% 4,672,608 45,670 3.93%
Cash and due from banks49,418 47,079
Accrued interest and other assets385,917 377,983
Less: Allowance for loan losses(14,989) (22,377)
Total assets$5,219,240 $5,075,293
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$248,364 71 0.11% $244,639 68 0.11%
Time deposits949,019 2,073 0.87% 976,600 1,927 0.79%
Interest bearing demand deposits1,634,898 1,460 0.36% 1,727,431 1,520 0.35%
Total interest bearing deposits2,832,281 3,604 0.51% 2,948,670 3,515 0.48%
Short-term interest bearing liabilities608,130 1,122 0.73% 385,858 906 0.94%
Long-term interest bearing liabilities – FHLB Dallas472,470 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 liabilities3,985,938 7,202 0.72% 3,887,057 6,711 0.69%
Noninterest bearing deposits702,539 682,360
Accrued expenses and other liabilities55,783 43,360
Total liabilities4,744,260 4,612,777
Shareholders’ equity474,980 462,516
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. See “Non-GAAP Financial Measures.”
(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. 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 discount and debt issuance costs reflected in 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 be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended September 30, 2016 and June 30, 2016 reflect unamortized debt issuance costs of $77,000 and $78,000, respectively.

Note: As of September 30, 2016 and June 30, 2016, loans totaling $8,536 and $11,767, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Three Months Ended
March 31, 2016
Avg
Balance
Interest Avg
Yield/
Rate
ASSETS
Loans (1) (2)$2,434,837 $28,793 4.76%
Loans held for sale3,581 32 3.59%
Securities:
Investment securities (taxable) (4)41,659 214 2.07%
Investment securities (tax-exempt) (3) (4)635,766 8,494 5.37%
Mortgage-backed and related securities (4)1,454,343 9,391 2.60%
Total securities2,131,768 18,099 3.41%
FHLB stock, at cost, and other investments55,116 217 1.58%
Interest earning deposits51,246 70 0.55%
Total earning assets4,676,548 47,211 4.06%
Cash and due from banks55,732
Accrued interest and other assets370,022
Less: Allowance for loan losses(20,088)
Total assets$5,082,214
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$235,492 65 0.11%
Time deposits915,316 1,723 0.76%
Interest bearing demand deposits1,717,717 1,468 0.34%
Total interest bearing deposits2,868,525 3,256 0.46%
Short-term interest bearing liabilities413,985 696 0.68%
Long-term interest bearing liabilities – FHLB Dallas566,825 2,039 1.45%
Long-term debt (5)60,232 405 2.70%
Total interest bearing liabilities3,909,567 6,396 0.66%
Noninterest bearing deposits672,865
Accrued expenses and other liabilities45,390
Total liabilities4,627,822
Shareholders’ equity454,392
Total liabilities and shareholders’ equity$5,082,214
Net interest income $40,815
Net interest margin on average earning assets 3.51%
Net interest spread 3.40%


(1)Interest on loans includes net fees on loans that are not material in amount.
(2)Interest income includes taxable-equivalent adjustment of $1,060 for the three months ended March 31, 2016. See “Non-GAAP Financial Measures.”
(3)Interest income includes taxable-equivalent adjustment of $3,139 for the three months ended March 31, 2016. 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 be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended March 31, 2016 reflects unamortized debt issuance costs of $79,000.

Note: As of March 31, 2016, loans totaling $21,927 were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.


For further information: Deborah Wilkinson 817-367-4962

Source:Southside Bancshares, Inc.