×

Southside Bancshares, Inc. Announces Financial Results for the Three and Six Months Ended June 30, 2017

TYLER, Texas, July 28, 2017 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three and six months ended June 30, 2017.

Southside reported net income of $14.5 million for the three months ended June 30, 2017, an increase of $3.1 million, or 27.1%, compared to $11.4 million for the same period in 2016. Southside reported net income of $29.5 million for the six months ended June 30, 2017, an increase of $4.6 million, or 18.3%, compared to $24.9 million for the same period in 2016.

Diluted earnings per common share were $0.49 for the three months ended June 30, 2017, an increase of $0.07, or 16.7%, compared to $0.42 for the three months ended June 30, 2016. For the six months ended June 30, 2017, diluted earnings per common share increased $0.08, or 8.7%, to $1.00 when compared to $0.92 for the same period in 2016.

The return on average shareholders’ equity for the six months ended June 30, 2017 was 11.13%, compared to 10.93% for the same period in 2016. The return on average assets was 1.06% for the six months ended June 30, 2017, compared to 0.99% for the same period in 2016.

“Strong financial results and the announcement of a merger agreement with Diboll State Bancshares, Inc. provide the highlights for the second quarter,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “Our financial results for the second quarter included solid loan growth of $71.3 million, a 2.8% increase on a linked quarter basis, net income of $14.5 million, which included $473,000 of merger related expense and $75,000 of expense associated with two scheduled branch closures, a decrease in the efficiency ratio to 50.26% and a decrease in our ratio of nonperforming assets to total assets to 0.16%.”

“Our loan growth primarily occurred late in the quarter with $60.1 million booked in June and of the $60.1 million, $14.6 million was booked during the last two days of June. End of quarter loan growth, combined with our healthy pipeline, should provide an excellent start for loan revenue in the third quarter.”

“On June 12, 2017, we announced the signing of a merger agreement with Diboll State Bancshares, Inc. (“Diboll”). We have filed all of our applications with relevant regulatory authorities and are currently preparing the preliminary proxy statement/prospectus to be included in our registration statement on Form S-4 which will be filed with the Securities and Exchange Commission. We anticipate closing this transaction sometime during the fourth quarter of 2017, subject to regulatory approval, Diboll shareholder approval, and customary closing conditions.”

Loans and Deposits

For the six months ended June 30, 2017, total loans increased by $53.7 million, or 2.1%, compared to December 31, 2016. The net increase in our loans was comprised primarily of increases of $87.7 million of commercial real estate loans, $6.7 million of construction loans, and $6.4 million of municipal loans, which were partially offset by decreases of $21.8 million of 1-4 family residential loans, $20.3 million of loans to individuals, and $5.0 million of commercial loans. Loans with oil and gas industry exposure totaled 1.14% of the loan portfolio at June 30, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the six months ended June 30, 2017 by $5.9 million, or 39.3%, to $9.2 million, or 0.16% of total assets, compared to 0.27% of total assets at December 31, 2016, due to the payoff of several nonaccrual commercial loans during the six months ended June 30, 2017.

During the six months ended June 30, 2017, the allowance for loan losses increased by $1.3 million, or 7.4%, to $19.2 million, or 0.74% of total loans, compared to 0.70% of total loans at December 31, 2016, primarily due to loan growth.

During the six months ended June 30, 2017, deposits, net of brokered deposits, decreased $11.0 million, or 0.3%, compared to December 31, 2016. During this six-month period, our public fund deposits decreased $38.2 million, or 3.8%.

Net Interest Income for the Three Months Ended June 30, 2017

Net interest income increased $1.0 million, or 3.0%, to $35.4 million for the three months ended June 30, 2017, compared to $34.4 million for the same period in 2016. The increase in net interest income was the result of a $4.9 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $3.9 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016. For the three months ended June 30, 2017, our net interest spread decreased to 2.89%, compared to 3.24% for the same period in 2016. Our net interest margin decreased to 3.07% for the three months ended June 30, 2017, compared to 3.35% for the same period in 2016. Both the decrease in net interest margin and spread was due to higher average rates paid on interest bearing liabilities along with a decrease in the average yield on earning assets. The increase in average rates paid on interest bearing liabilities was a direct result of the subordinated debt issuance and the decrease in purchase accretion on the certificate of deposit premium during the third quarter of 2016 and overall higher interest rates. The decrease in the average yield on earning assets during the three months ended June 30, 2017 was primarily the result of a decrease in purchase accounting accretion on loans and a decrease in the average yield on tax-exempt investment securities. The net interest spread and margin on a linked quarter basis decreased from 2.93% and 3.08%, respectively, for the three months ended March 31, 2017, to 2.89% and 3.07%, respectively, for the three months ended June 30, 2017.

Net Interest Income for the Six Months Ended June 30, 2017

Net interest income decreased $290,000, or 0.4%, to $70.7 million for the six months ended June 30, 2017, compared to $71.0 million for the same period in 2016. The decrease in net interest income was the result of the $7.1 million increase in interest expense on our deposits and other interest bearing liabilities exceeding the $6.8 million increase in interest income on loans and the securities portfolio, compared to the same period in 2016. For the six months ended June 30, 2017, our net interest spread decreased to 2.91%, compared to 3.32% for the same period in 2016. Our net interest margin decreased to 3.07% for the six months ended June 30, 2017, compared to 3.43% for the same period in 2016. Both the decrease in net interest margin and spread was due to higher average rates paid on interest bearing liabilities along with a decrease in the average yield on earning assets. The increase in average rates paid on interest bearing liabilities was a direct result of the subordinated debt issuance and the decrease in purchase accretion on the certificate of deposit premium during the third quarter of 2016 and overall higher interest rates. The decrease in the average yield on earning assets was the result of a 23 basis point decrease in the average yield on investment securities combined with a decrease in purchase accounting accretion on loans and the effect on the average yield on loans in 2016, of the $1.3 million recovery of interest income on the payoff of a long-term nonaccrual loan during the first quarter of 2016.

Net Income for the Three Months Ended June 30, 2017

Net income increased $3.1 million, or 27.1%, for the three months ended June 30, 2017, to $14.5 million compared to the same period in 2016. The increase was primarily the result of a $4.9 million increase in interest income and a $2.4 million decrease in provision for loan losses, partially offset by a $3.9 million increase in interest expense and a $0.6 million increase in income tax expense.

Noninterest income decreased $0.1 million, or 0.8%, for the three months ended June 30, 2017, compared to the same period in 2016, due primarily to a decrease in net gain on sale of securities available for sale and a decrease in gain on sale of loans which was partially offset by increases in other noninterest income, deposit services income, and brokerage services income.

Noninterest expense decreased $0.3 million, or 1.1%, for the three months ended June 30, 2017, compared to the same period in 2016, due primarily to decreases in professional fees, FDIC insurance and advertising, travel and entertainment expense, partially offset by increases in other noninterest expense. The decrease in professional fees is due to decreases in consulting fees associated with the cost containment and process improvement efforts initiated in January 2016. FDIC insurance decreased due to reduced FDIC assessment rates. Advertising, travel and entertainment expenses decreased primarily due to a decrease in advertising expense. Other noninterest expense increased primarily due to acquisition expense of approximately $473,000 related to the pending merger with Diboll.

Net Income for the Six Months Ended June 30, 2017

Net income increased $4.6 million, or 18.3%, for the six months ended June 30, 2017, to $29.5 million compared to the same period in 2016. The increase was primarily the result of a $6.8 million increase in interest income, a $3.8 million decrease in noninterest expense, and a $3.6 million decrease in provision for loan losses, partially offset by a $7.1 million increase in interest expense, a $2.0 million decrease in noninterest income, and a $0.6 million increase in income tax expense.

Noninterest income decreased $2.0 million, or 9.5%, for the six months ended June 30, 2017 compared to the same period in 2016, due to a decrease in net gain on sale of securities available for sale and a decrease in gain on sale of loans which was partially offset by increases in other noninterest income, deposit services income, and brokerage services income.

Noninterest expense decreased $3.8 million, or 6.9%, for the six months ended June 30, 2017, compared to the same period in 2016, due primarily to decreases in salary and employee benefits, professional fees, occupancy expense, FDIC insurance, advertising, travel and entertainment expense and other noninterest expense, partially offset by an increase in ATM and debit card expense. The decrease in salaries and employee benefits was due to a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the six months ended June 30, 2016. Professional fees decreased due to decreases in consulting fees associated with cost containment and process improvement efforts initiated in January 2016. Occupancy expense decreased due to lower rent expense. FDIC insurance decreased due to reduced FDIC assessment rates. Advertising, travel and entertainment expenses decreased primarily due to decreases in advertising and travel expenditures. 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, a decrease in core deposit intangible amortization expense and equipment maintenance expense, partially offset by acquisition expense of approximately $473,000 related to the pending merger with Diboll. ATM and debit card expense increased due to increased activity.

Conference Call

Southside's management team will host a conference call to discuss its second quarter 2017 financial results on Friday, July 28, 2017 at 9:00 am CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 52302927 or by identifying “Southside Bancshares, Inc., Second 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 July 28, 2017 through August 9, 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: (i) tax-equivalent net interest income, (ii) tax-equivalent net interest margin, (iii) tax-equivalent net interest spread, and (iv) 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. The most directly comparable financial measure calculated in accordance with GAAP is our efficiency ratio.

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 $5.58 billion in assets as of June 30, 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 Suni Davis at (903) 531-7235, or suni.davis@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, planned operational efficiencies, earnings, pending acquisitions, 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
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
ASSETS
Cash and due from banks $56,033 $54,345 $59,363 $54,255 $45,663
Interest earning deposits 175,039 185,289 102,251 144,833 18,450
Federal funds sold 4,760 7,360 8,040
Securities available for sale, at estimated fair value 1,397,811 1,444,043 1,479,600 1,622,128 1,416,335
Securities held to maturity, at carrying value 925,538 929,793 937,487 775,682 784,925
Federal Home Loan Bank stock, at cost 61,561 61,305 61,084 51,901 47,702
Loans held for sale 3,036 5,303 7,641 5,301 5,883
Loans 2,610,198 2,538,918 2,556,537 2,483,641 2,384,321
Less: Allowance for loan losses (19,241) (18,485) (17,911) (15,993) (14,908)
Net loans 2,590,957 2,520,433 2,538,626 2,467,648 2,369,413
Premises & equipment, net 105,938 105,327 106,003 106,777 107,242
Goodwill 91,520 91,520 91,520 91,520 91,520
Other intangible assets, net 3,767 4,177 4,608 5,060 5,534
Bank owned life insurance 99,011 98,377 97,775 97,002 96,375
Other assets 63,511 148,977 69,769 42,796 45,886
Total assets $5,578,482 $5,656,249 $5,563,767 $5,464,903 $5,034,928
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits $757,353 $753,224 $704,013 $747,270 $679,831
Interest bearing deposits 2,866,720 2,952,072 2,829,063 2,834,117 2,890,418
Total deposits 3,624,073 3,705,296 3,533,076 3,581,387 3,570,249
Short-term obligations 1,024,257 960,730 873,615 720,634 385,717
Long-term obligations 320,658 411,310 601,464 621,640 559,071
Other liabilities 62,429 47,447 37,338 68,682 47,591
Total liabilities 5,031,417 5,124,783 5,045,493 4,992,343 4,562,628
Shareholders' equity 547,065 531,466 518,274 472,560 472,300
Total liabilities and shareholders' equity $5,578,482 $5,656,249 $5,563,767 $5,464,903 $5,034,928



At or For the Three Months Ended
2017 2016
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Income Statement:
Total interest income $46,009 $44,888 $43,680 $41,132 $41,089
Total interest expense 10,585 9,608 9,039 7,202 6,711
Net interest income 35,424 35,280 34,641 33,930 34,378
Provision for loan losses 1,346 1,098 2,065 1,631 3,768
Net interest income after provision for loan losses 34,078 34,182 32,576 32,299 30,610
Noninterest income
Deposit services 5,255 5,114 5,183 5,335 5,099
Net (loss) gain on sale of securities available for sale (75) 322 (2,676) 2,343 728
Gain on sale of loans 505 701 461 818 873
Trust income 899 890 900 867 869
Bank owned life insurance income 635 634 649 656 647
Brokerage services 682 547 466 551 535
Other 1,392 1,465 1,730 1,162 619
Total noninterest income 9,293 9,673 6,713 11,732 9,370
Noninterest expense
Salaries and employee benefits 14,915 15,919 16,194 15,203 14,849
Occupancy expense 2,897 2,863 2,825 4,569 2,993
Advertising, travel & entertainment 548 583 648 588 722
ATM and debit card expense 889 927 820 868 736
Professional fees 1,050 939 982 1,148 1,478
Software and data processing expense 688 725 687 736 739
Telephone and communications 476 526 572 407 468
FDIC insurance 445 441 215 643 645
FHLB prepayment fees 148
Other 3,629 2,935 2,934 4,263 3,035
Total noninterest expense 25,537 25,858 25,877 28,425 25,813
Income before income tax expense 17,834 17,997 13,412 15,606 14,167
Income tax expense 3,353 3,008 1,839 2,741 2,772
Net income $14,481 $14,989 $11,573 $12,865 $11,395
Common share data:
Weighted-average basic shares outstanding 29,318 29,288 27,542 26,923 26,890
Weighted-average diluted shares outstanding 29,519 29,504 27,731 27,080 27,013
Shares outstanding end of period 29,344 29,306 29,261 26,939 26,912
Net income per common share
Basic $0.49 $0.51 $0.42 $0.48 $0.42
Diluted 0.49 0.51 0.42 0.48 0.42
Book value per common share 18.64 18.14 17.71 17.54 17.55
Cash dividend paid per common share 0.28 0.25 0.30 0.24 0.24
Selected Performance Ratios:
Return on average assets 1.04% 1.08% 0.83% 0.98% 0.90%
Return on average shareholders’ equity 10.70 11.57 9.56 10.78 9.91
Average yield on earning assets (1) 3.88 3.82 3.73 3.78 3.93
Average rate on interest bearing liabilities 0.99 0.89 0.83 0.72 0.69
Net interest spread (1) 2.89 2.93 2.90 3.06 3.24
Net interest margin (1) 3.07 3.08 3.03 3.19 3.35
Average earning assets to average interest bearing liabilities 121.57 120.04 119.88 120.40 120.21
Noninterest expense to average total assets 1.83 1.87 1.85 2.17 2.05
Efficiency ratio (1) 50.26 51.60 52.00 53.88 52.85
(1) See “Non-GAAP Financial Measures.”


At or For the
Six Months Ended
June 30,
2017 2016
Income Statement:
Total interest income $90,897 $84,101
Total interest expense 20,193 13,107
Net interest income 70,704 70,994
Provision for loan losses 2,444 6,084
Net interest income after provision for loan losses 68,260 64,910
Noninterest income
Deposit services 10,369 10,184
Net gain on sale of securities available for sale 247 3,169
Gain on sale of loans 1,206 1,516
Trust income 1,789 1,724
Bank owned life insurance income 1,269 1,321
Brokerage services 1,229 1,110
Other 2,857 1,942
Total noninterest income 18,966 20,966
Noninterest expense
Salaries and employee benefits 30,834 32,581
Occupancy expense 5,760 6,328
Advertising, travel & entertainment 1,131 1,407
ATM and debit card expense 1,816 1,448
Professional fees 1,989 2,816
Software and data processing expense 1,413 1,488
Telephone and communications 1,002 952
FDIC insurance 886 1,283
FHLB prepayment fees 148
Other 6,564 6,769
Total noninterest expense 51,395 55,220
Income before income tax expense 35,831 30,656
Income tax expense 6,361 5,745
Net income $29,470 $24,911
Common share data:
Weighted-average basic shares outstanding 29,303 27,002
Weighted-average diluted shares outstanding 29,511 27,099
Net income per common share
Basic $1.01 $0.92
Diluted 1.00 0.92
Book value per common share 18.64 17.55
Cash dividend paid per common share 0.53 0.47
Selected Performance Ratios:
Return on average assets 1.06% 0.99%
Return on average shareholders’ equity 11.13 10.93
Average yield on earning assets (1) 3.85 4.00
Average yield on interest bearing liabilities 0.94 0.68
Net interest spread (1) 2.91 3.32
Net interest margin (1) 3.07 3.43
Average earning assets to average interest bearing liabilities 120.80 119.91
Noninterest expense to average total assets 1.85 2.19
Efficiency ratio (1) 50.93 55.22
(1) See “Non-GAAP Financial Measures.”


Southside Bancshares, Inc.
Selected Financial Data (unaudited)
(dollars in thousands)
Three Months Ended
2017 2016
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Nonperforming assets:$9,165 $14,079 $15,105 $16,008 $24,510
Nonaccrual loans (1)3,034 7,261 8,280 8,536 11,767
Accruing loans past due more than 90 days (1) 1 6 1 6
Restructured loans (2)5,884 6,424 6,431 7,193 12,477
Other real estate owned233 367 339 237 237
Repossessed assets14 26 49 41 23
Asset Quality Ratios:
Nonaccruing loans to total loans0.12% 0.29% 0.32% 0.34% 0.49%
Allowance for loan losses to nonaccruing loans634.18 254.58 216.32 187.36 126.69
Allowance for loan losses to nonperforming assets209.94 131.29 118.58 99.91 60.82
Allowance for loan losses to total loans0.74 0.73 0.70 0.64 0.63
Nonperforming assets to total assets0.16 0.25 0.27 0.29 0.49
Net charge-offs to average loans0.09 0.08 0.02 0.09 1.77
Capital Ratios:
Shareholders’ equity to total assets9.81 9.40 9.32 8.65 9.38
Average shareholders’ equity to average total assets9.72 9.36 8.66 9.10 9.11
(1) Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2) Includes $3.0 million, $3.0 million, $3.1 million, $3.2 million, and $8.3 million in PCI loans restructured as of June 30, 2017, March 31, 2017,
December 31, 2016, September 30, 2016, and June 30, 2016, respectively.

Loan Portfolio Composition

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

Three Months Ended
2017 2016
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Real Estate Loans:
Construction $386,853 $362,367 $380,175 $466,323 $425,595
1-4 Family Residential 615,405 622,881 637,239 644,746 633,400
Commercial 1,033,629 974,307 945,978 759,795 694,272
Commercial Loans 172,311 176,908 177,265 191,154 197,896
Municipal Loans 305,023 297,417 298,583 293,949 292,909
Loans to Individuals 96,977 105,038 117,297 127,674 140,249
Total Loans $2,610,198 $2,538,918 $2,556,537 $2,483,641 $2,384,321

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
June 30, 2017 March 31, 2017
Avg Balance Interest Avg
Yield/Rate
Avg Balance Interest Avg
Yield/Rate
ASSETS
Loans (1) (2) $2,557,093 $29,080 4.56% $2,549,230 $28,241 4.49%
Loans held for sale 5,914 60 4.07% 7,023 48 2.77%
Securities:
Investment securities (taxable) (4) 58,168 267 1.84% 86,511 377 1.77%
Investment securities (tax-exempt) (3) (4) 749,259 9,386 5.02% 779,772 9,929 5.16%
Mortgage-backed and related securities (4) 1,594,269 10,818 2.72% 1,570,510 10,045 2.59%
Total securities 2,401,696 20,471 3.42% 2,436,793 20,351 3.39%
FHLB stock, at cost, and other investments 66,744 299 1.80% 66,547 298 1.82%
Interest earning deposits 156,124 364 0.94% 162,235 346 0.86%
Federal funds sold 5,326 14 1.05% 7,217 14 0.79%
Total earning assets 5,192,897 50,288 3.88% 5,229,045 49,298 3.82%
Cash and due from banks 50,961 53,528
Accrued interest and other assets 358,041 350,729
Less: Allowance for loan losses (18,495) (18,130)
Total assets $5,583,404 $5,615,172
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits $262,009 121 0.19% $252,744 92 0.15%
Time deposits 1,014,101 2,723 1.08% 927,610 2,227 0.97%
Interest bearing demand deposits 1,616,036 2,294 0.57% 1,707,996 1,962 0.47%
Total interest bearing deposits 2,892,146 5,138 0.71% 2,888,350 4,281 0.60%
Short-term interest bearing liabilities 1,010,484 2,480 0.98% 1,007,546 2,065 0.83%
Long-term interest bearing liabilities – FHLB Dallas 210,416 1,075 2.05% 301,775 1,402 1.88%
Subordinated notes (5) 98,151 1,398 5.71% 98,117 1,393 5.76%
Long-term debt (6) 60,238 494 3.29% 60,237 467 3.14%
Total interest bearing liabilities 4,271,435 10,585 0.99% 4,356,025 9,608 0.89%
Noninterest bearing deposits 729,564 693,729
Accrued expenses and other liabilities 39,819 39,960
Total liabilities 5,040,818 5,089,714
Shareholders’ equity 542,586 525,458
Total liabilities and shareholders’ equity $5,583,404 $5,615,172
Net interest income (7) $39,703 $39,690
Net interest margin on average earning assets (7) 3.07% 3.08%
Net interest spread (7) 2.89% 2.93%

  1. Interest on loans includes net fees on loans that are not material in amount.
  2. Interest income includes taxable-equivalent adjustments of $1,050 and $1,035 for the three months ended June 30, 2017 and March 31, 2017, respectively. See “Non-GAAP Financial Measures.”
  3. Interest income includes taxable-equivalent adjustments of $3,229 and $3,375 for the three months ended June 30, 2017 and March 31, 2017, 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 $1.8 million and $1.9 million for the three months ended June 30, 2017 and March 31, 2017, respectively.
  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 June 30, 2017 and March 31, 2017 reflect unamortized debt issuance costs of $73,000 and $74,000, respectively.
  7. See “Non-GAAP Financial Measures.”

Note: As of June 30, 2017 and March 31, 2017, loans totaling $3,034 and $7,261, 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
December 31, 2016 September 30, 2016
Avg Balance Interest Avg
Yield/Rate
Avg Balance Interest Avg
Yield/Rate
ASSETS
Loans (1) (2) $2,512,820 $27,835 4.41% $2,436,349 $26,750 4.37%
Loans held for sale 4,845 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 and related securities (4) 1,520,045 9,294 2.43% 1,492,271 9,399 2.51%
Total securities 2,447,873 20,131 3.27% 2,244,144 18,561 3.29%
FHLB stock, at cost, and other investments 62,087 210 1.35% 54,085 186 1.37%
Interest earning deposits 134,786 165 0.49% 57,598 89 0.61%
Federal funds sold 2,972 5 0.67%
Total earning assets 5,165,383 48,382 3.73% 4,798,894 45,640 3.78%
Cash and due from banks 52,415 49,418
Accrued interest and other assets 359,217 385,917
Less: Allowance for loan losses (16,467) (14,989)
Total assets $5,560,548 $5,219,240
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits $250,706 76 0.12% $248,364 71 0.11%
Time deposits 926,021 2,261 0.97% 949,019 2,073 0.87%
Interest bearing demand deposits 1,646,535 1,543 0.37% 1,634,898 1,460 0.36%
Total interest bearing deposits 2,823,262 3,880 0.55% 2,832,281 3,604 0.51%
Short-term interest bearing liabilities 869,398 1,428 0.65% 608,130 1,122 0.73%
Long-term interest bearing liabilities – FHLB Dallas 457,754 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 liabilities 4,308,660 9,039 0.83% 3,985,938 7,202 0.72%
Noninterest bearing deposits 717,599 702,539
Accrued expenses and other liabilities 52,714 55,783
Total liabilities 5,078,973 4,744,260
Shareholders’ equity 481,575 474,980
Total liabilities and shareholders’ equity $5,560,548 $5,219,240
Net interest income (7) $39,343 $38,438
Net interest margin on average earning assets (7) 3.03% 3.19%
Net interest spread (7) 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 discount and debt issuance costs reflected in 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 be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended December 31, 2016 and September 30, 2016 reflect unamortized debt issuance costs of $76,000 and $77,000, respectively.
  7. See “Non-GAAP Financial Measures.”

Note: As of December 31, 2016 and September 30, 2016, loans totaling $8,280 and $8,536, 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
June 30, 2016
Avg Balance Interest Avg
Yield/Rate
ASSETS
Loans (1) (2) $2,426,733 $27,275 4.52%
Loans held for sale 4,984 40 3.23%
Securities:
Investment securities (taxable) (4) 22,010 107 1.96%
Investment securities (tax-exempt) (3) (4) 657,568 8,636 5.28%
Mortgage-backed and related securities (4) 1,450,868 9,366 2.60%
Total securities 2,130,446 18,109 3.42%
FHLB stock, at cost, and other investments 52,952 185 1.41%
Interest earning deposits 57,493 61 0.43%
Total earning assets 4,672,608 45,670 3.93%
Cash and due from banks 47,079
Accrued interest and other assets 377,983
Less: Allowance for loan losses (22,377)
Total assets $5,075,293
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits $244,639 68 0.11%
Time deposits 976,600 1,927 0.79%
Interest bearing demand deposits 1,727,431 1,520 0.35%
Total interest bearing deposits 2,948,670 3,515 0.48%
Short-term interest bearing liabilities 385,858 906 0.94%
Long-term interest bearing liabilities – FHLB Dallas 492,296 1,874 1.53%
Long-term debt (5) 60,233 416 2.78%
Total interest bearing liabilities 3,887,057 6,711 0.69%
Noninterest bearing deposits 682,360
Accrued expenses and other liabilities 43,360
Total liabilities 4,612,777
Shareholders’ equity 462,516
Total liabilities and shareholders’ equity $5,075,293
Net interest income (6) $38,959
Net interest margin on average earning assets (6) 3.35%
Net interest spread (6) 3.24%

  1. Interest on loans includes net fees on loans that are not material in amount.
  2. Interest income includes taxable-equivalent adjustment of $1,082 for the three months ended June 30, 2016. See “Non-GAAP Financial Measures.”
  3. Interest income includes taxable-equivalent adjustment of $3,499 for the three months ended June 30, 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 June 30, 2016 reflects unamortized debt issuance costs of $78,000.
  6. See “Non-GAAP Financial Measures.”

Note: As of June 30, 2016, loans totaling $11,767 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.

Average Balances with Average Yields and Rates
(unaudited)
Six Months Ended
June 30, 2017 June 30, 2016
Avg Balance Interest Avg
Yield/Rate
Avg Balance Interest Avg
Yield/Rate
ASSETS
Loans (1) (2) $2,553,183 $57,321 4.53% $2,430,783 $56,068 4.64%
Loans held for sale 6,466 108 3.37% 4,283 72 3.38%
Securities:
Investment securities (taxable) (4) 72,262 644 1.80% 31,835 321 2.03%
Investment securities (tax-exempt) (3) (4) 764,431 19,315 5.10% 646,667 17,130 5.33%
Mortgage-backed and related securities (4) 1,582,455 20,863 2.66% 1,452,605 18,757 2.60%
Total securities 2,419,148 40,822 3.40% 2,131,107 36,208 3.42%
FHLB stock, at cost, and other investments 66,646 597 1.81% 54,034 402 1.50%
Interest earning deposits 159,162 710 0.90% 54,255 131 0.49%
Federal funds sold 6,266 28 0.90%
Total earning assets 5,210,871 99,586 3.85% 4,674,462 92,881 4.00%
Cash and due from banks 52,237 51,406
Accrued interest and other assets 354,283 373,998
Less: Allowance for loan losses (18,313) (21,233)
Total assets $5,599,078 $5,078,633
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits $257,402 213 0.17% $240,066 133 0.11%
Time deposits 971,095 4,950 1.03% 945,958 3,650 0.78%
Interest bearing demand deposits 1,661,762 4,256 0.52% 1,722,573 2,988 0.35%
Total interest bearing deposits 2,890,259 9,419 0.66% 2,908,597 6,771 0.47%
Short-term interest bearing liabilities 1,009,023 4,545 0.91% 399,922 1,602 0.81%
Long-term interest bearing liabilities – FHLB Dallas 255,843 2,477 1.95% 529,561 3,913 1.49%
Subordinated notes (5) 98,134 2,791 5.74%
Long-term debt (6) 60,237 961 3.22% 60,232 821 2.74%
Total interest bearing liabilities 4,313,496 20,193 0.94% 3,898,312 13,107 0.68%
Noninterest bearing deposits 711,745 677,612
Accrued expenses and other liabilities 39,768 44,247
Total liabilities 5,065,009 4,620,171
Shareholders’ equity 534,069 458,462
Total liabilities and shareholders’ equity $5,599,078 $5,078,633
Net interest income (7) $79,393 $79,774
Net interest margin on average earning assets (7) 3.07% 3.43%
Net interest spread (7) 2.91% 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 $2,085 and $2,142 for the six months ended June 30, 2017 and 2016, respectively. See “Non-GAAP Financial Measures.”
  3. Interest income includes taxable-equivalent adjustments of $6,604 and $6,638 for the six months ended June 30, 2017 and 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 for the six months ended June 30, 2017.
  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 six months ended June 30, 2017 and 2016 reflect unamortized debt issuance costs of $74,000 and $79,000, respectively.
  7. See “Non-GAAP Financial Measures.”

Note: As of June 30, 2017 and 2016, loans totaling $3,034 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.

Source:Southside Bancshares, Inc.