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

TYLER, Texas, Oct. 27, 2017 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ:SBSI) today reported its financial results for the three and nine months ended September 30, 2017.

Southside reported net income of $14.5 million for the three months ended September 30, 2017, an increase of $1.6 million, or 12.8%, compared to $12.9 million for the same period in 2016. Southside reported net income of $44.0 million for the nine months ended September 30, 2017, an increase of $6.2 million, or 16.4%, compared to $37.8 million for the same period in 2016.

Diluted earnings per common share were $0.49 for the three months ended September 30, 2017, an increase of $0.01, or 2.1%, compared to $0.48 for the three months ended September 30, 2016. For the nine months ended September 30, 2017, diluted earnings per common share increased $0.10, or 7.2%, to $1.49 when compared to $1.39 for the same period in 2016.

The return on average shareholders’ equity was 10.87% for both the nine months ended September 30, 2017 and 2016. The return on average assets was 1.05% for the nine months ended September 30, 2017, compared to 0.98% for the same period in 2016.

“Strong third quarter financial performance resulted from a continued focus on our business model of serving our customers’ needs, quality loan growth and continued cost containment,” stated Lee R. Gibson, President and Chief Executive Officer of Southside. “Similar to the second quarter, we experienced solid loan growth of $72.6 million, or 2.8%, on a linked quarter basis while maintaining strong asset quality ratios as evidenced by our nonperforming assets to total assets ratio of 0.17%. During the third quarter our efficiency ratio reached a new low of 49.99%, while our efficiency ratio for the nine months ended September 30, 2017 declined to 50.62% from 54.78% for the same period in 2016. Net income of $14.5 million during the third quarter included $365,000 of merger related expenses, net of tax, and $49,000 net of tax expense associated with branch closures.”

“During the third quarter we decreased the securities portfolio $121 million on a linked quarter basis. As long term interest rates decreased during August and into September, we sold selected, mostly longer duration securities.”

“The shareholders of Diboll Bancshares, Inc. ("Diboll") have approved the merger with Southside and we have received the required approval from two of our three regulators. We still anticipate closing the merger sometime during the fourth quarter.”

Loans and Deposits

For the nine months ended September 30, 2017, total loans increased by $126.2 million, or 4.9%, compared to December 31, 2016. The net increase in our loans was comprised primarily of increases of $127.7 million of commercial real estate loans, $40.3 million of construction loans, and $23.7 million of municipal loans, which were partially offset by decreases of $28.1 million of 1-4 family residential loans, $27.0 million of loans to individuals, and $10.3 million of commercial loans. Oil and gas industry loans totaled 1.10% of the loan portfolio at September 30, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the nine months ended September 30, 2017 by $6.0 million, or 39.6%, to $9.1 million, or 0.17% 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 three months ended June 30, 2017.

During the nine months ended September 30, 2017, the allowance for loan losses increased by $2.0 million, or 10.9%, to $19.9 million, or 0.74% of total loans, compared to 0.70% of total loans at December 31, 2016, primarily due to loan growth.

For the nine months ended September 30, 2017, deposits, net of brokered deposits, decreased $10.2 million, or 0.3%, compared to December 31, 2016. During this same nine-month period, total deposits increased $31.1 million, or 0.9%, to $3.56 billion at September 30, 2017, due to an increase of $41.3 million in brokered deposits and $58.3 million in non-public fund deposits, partially offset by a decrease in public fund deposits of $68.5 million. For the nine months ended September 30, 2017, the mix of non-interest bearing and interest bearing deposits changed. Noninterest bearing deposits increased $77.7 million and interest bearing deposits decreased $46.6 million.

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

Net interest income increased $1.0 million, or 3.0%, to $35.0 million for the three months ended September 30, 2017, compared to $33.9 million for the same period in 2016. The increase in net interest income was the result of a $5.3 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $4.3 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016. For the three months ended September 30, 2017, our net interest spread decreased to 2.82%, compared to 3.06% for the same period in 2016. Our net interest margin decreased to 3.02% for the three months ended September 30, 2017, compared to 3.19% for the same period in 2016. Both the decrease in net interest spread and margin was due to higher average rates paid on interest bearing liabilities, partially offset by the increase in the average yield on earning assets. The increase in average rates paid on interest bearing liabilities was primarily due to overall higher interest rates during 2017 and the remaining purchase accretion on the certificate of deposit premium amortizing during the third quarter of 2016. The increase in the average yield on earning assets during the three months ended September 30, 2017 was the result of increases in the average yields on most of the earning asset categories partially offset by the mix in earning assets and the decrease in purchase accounting accretion on loans. The net interest spread and margin on a linked quarter basis decreased from 2.89% and 3.07%, respectively, for the three months ended June 30, 2017, to 2.82% and 3.02%, respectively, for the three months ended September 30, 2017.

Net Interest Income for the Nine Months Ended September 30, 2017

Net interest income increased $740,000, or 0.7%, to $105.7 million for the nine months ended September 30, 2017, compared to $104.9 million for the same period in 2016. The increase in net interest income was the result of a $12.1 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $11.4 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016. For the nine months ended September 30, 2017, our net interest spread decreased to 2.88%, compared to 3.23% for the same period in 2016. Our net interest margin decreased to 3.06% for the nine months ended September 30, 2017, compared to 3.35% for the same period in 2016. Both the decrease in net interest spread and margin 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 primarily due to overall higher interest rates during 2017 and the remaining purchase accretion on the certificate of deposit premium amortizing during the third quarter of 2016. The decrease in the average yield on earning assets was the result of the mix in earning assets, a decrease in the average yields 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, partially offset by the increase in average yield on mortgage-backed and related securities, FHLB stock, at cost and other investments and interest earning deposits.

Net Income for the Three Months Ended September 30, 2017

Net income increased $1.6 million, or 12.8%, for the three months ended September 30, 2017, to $14.5 million compared to the same period in 2016. The increase was primarily the result of a $5.3 million increase in interest income, a $3.4 million decrease in noninterest expense, and a $0.7 million decrease in provision for loan losses, partially offset by a $4.3 million increase in interest expense, a $2.3 million decrease in noninterest income, and a $1.1 million increase in income tax expense.

Noninterest income decreased $2.3 million, or 19.8%, for the three months ended September 30, 2017, compared to the same period in 2016, due primarily to a decrease in the net gain on sale of securities available for sale, a decrease in gain on sale of loans, and a decrease in other noninterest income.

Noninterest expense decreased $3.4 million, or 12.0%, for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to reductions in occupancy expense of $1.6 million, salary and employee benefit expense of $0.8 million, and other noninterest expense of $0.8 million. During the third quarter of 2016, we incurred $1.8 million in occupancy expense due to the early termination of a lease that included the write-off of the associated leasehold improvements. Salary and employee benefits decreased due to reductions in direct salary expense and retirement expense. Other noninterest expense decreased primarily due to decreases in the provision expense for losses on loans sold with recourse and expense related to repossessed assets, partially offset by $0.4 million in acquisition expense related to the proposed merger with Diboll.

Net Income for the Nine Months Ended September 30, 2017

Net income increased $6.2 million, or 16.4%, for the nine months ended September 30, 2017, to $44.0 million compared to the same period in 2016. The increase was primarily the result of a $12.1 million increase in interest income, a $7.2 million decrease in noninterest expense, and a $4.3 million decrease in provision for loan losses, partially offset by an $11.4 million increase in interest expense, a $4.3 million decrease in noninterest income, and a $1.8 million increase in income tax expense. Noninterest income decreased $4.3 million, or 13.2%, for the nine months ended September 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, partially offset by increases in other noninterest income.

Noninterest expense decreased $7.2 million, or 8.7%, for the nine months ended September 30, 2017, compared to the same period in 2016. The decrease is primarily attributable to a reduction in salaries and employee benefits of $2.6 million, occupancy expense of $2.2 million, professional fees of $1.0 million, and other noninterest expense of $1.1 million. The decrease in salaries and employee benefits is primarily due to a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the nine months ended September 30, 2016. The decrease in occupancy expense is due to the early termination of a lease during the third quarter of 2016 and lower rent expense in 2017. Professional fees decreased due to less consulting fees associated with cost containment and process improvement efforts initiated in January 2016. Other noninterest expense decreased primarily due to a reduction in the provision expense for losses on unfunded loan commitments and loans sold with recourse, losses on other real estate owned, repossessed assets expense, and amortization expense on core deposit intangibles, partially offset by acquisition expense of $0.9 million related to the proposed merger with Diboll.

Conference Call

Southside's management team will host a conference call to discuss its third quarter 2017 financial results on Friday, October 27, 2017 at 9:00 a.m. CDT. The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 92812124 or by identifying “Southside Bancshares, Inc., Third Quarter 2017 Earnings Call.” To listen to the call via webcast, 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 p.m. CDT October 27, 2017 through November 7, 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 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, 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 $5.48 billion in assets as of September 30, 2017, that owns 100% of Southside Bank. Southside Bank currently has 57 banking centers in Texas and operates a network of 71 ATMs/ITMs.

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
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
ASSETS
Cash and due from banks$57,947 $56,033 $54,345 $59,363 $54,255
Interest earning deposits120,996 175,039 185,289 102,251 144,833
Federal funds sold5,570 4,760 7,360 8,040
Securities available for sale, at estimated fair value1,292,072 1,397,811 1,444,043 1,479,600 1,622,128
Securities held to maturity, at carrying value909,844 925,538 929,793 937,487 775,682
Federal Home Loan Bank stock, at cost61,845 61,561 61,305 61,084 51,901
Loans held for sale2,177 3,036 5,303 7,641 5,301
Loans2,682,766 2,610,198 2,538,918 2,556,537 2,483,641
Less: Allowance for loan losses(19,871) (19,241) (18,485) (17,911) (15,993)
Net loans2,662,895 2,590,957 2,520,433 2,538,626 2,467,648
Premises & equipment, net107,099 105,938 105,327 106,003 106,777
Goodwill91,520 91,520 91,520 91,520 91,520
Other intangible assets, net3,379 3,767 4,177 4,608 5,060
Bank owned life insurance99,616 99,011 98,377 97,775 97,002
Other assets69,470 63,511 148,977 69,769 42,796
Total assets$5,484,430 $5,578,482 $5,656,249 $5,563,767 $5,464,903
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$781,701 $757,353 $753,224 $704,013 $747,270
Interest bearing deposits2,782,474 2,866,720 2,952,072 2,829,063 2,834,117
Total deposits3,564,175 3,624,073 3,705,296 3,533,076 3,581,387
Short-term obligations999,583 1,024,257 960,730 873,615 720,634
Long-term obligations310,505 320,658 411,310 601,464 621,640
Other liabilities54,144 62,429 47,447 37,338 68,682
Total liabilities4,928,407 5,031,417 5,124,783 5,045,493 4,992,343
Shareholders' equity556,023 547,065 531,466 518,274 472,560
Total liabilities and shareholders' equity$5,484,430 $5,578,482 $5,656,249 $5,563,767 $5,464,903



At or For the Three Months Ended
2017 2016
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Income Statement:
Total interest income$46,473 $46,009 $44,888 $43,680 $41,132
Total interest expense11,513 10,585 9,608 9,039 7,202
Net interest income34,960 35,424 35,280 34,641 33,930
Provision for loan losses960 1,346 1,098 2,065 1,631
Net interest income after provision for loan losses34,000 34,078 34,182 32,576 32,299
Noninterest income
Deposit services5,476 5,255 5,114 5,183 5,335
Net gain (loss) on sale of securities available for sale627 (75) 322 (2,676) 2,343
Gain on sale of loans347 505 701 461 818
Trust income873 899 890 900 867
Bank owned life insurance income636 635 634 649 656
Brokerage services561 682 547 466 551
Other888 1,392 1,465 1,730 1,162
Total noninterest income9,408 9,293 9,673 6,713 11,732
Noninterest expense
Salaries and employee benefits14,395 14,915 15,919 16,194 15,203
Occupancy expense2,981 2,897 2,863 2,825 4,569
Advertising, travel & entertainment487 548 583 648 588
ATM and debit card expense1,024 889 927 820 868
Professional fees996 1,050 939 982 1,148
Software and data processing expense732 688 725 687 736
Telephone and communications459 476 526 572 407
FDIC insurance441 445 441 215 643
Other3,492 3,629 2,935 2,934 4,263
Total noninterest expense25,007 25,537 25,858 25,877 28,425
Income before income tax expense18,401 17,834 17,997 13,412 15,606
Income tax expense3,890 3,353 3,008 1,839 2,741
Net income$14,511 $14,481 $14,989 $11,573 $12,865
Common share data:
Weighted-average basic shares outstanding29,370 29,318 29,288 27,542 26,923
Weighted-average diluted shares outstanding29,570 29,519 29,504 27,731 27,080
Shares outstanding end of period29,433 29,344 29,306 29,261 26,939
Net income per common share
Basic$0.49 $0.49 $0.51 $0.42 $0.48
Diluted0.49 0.49 0.51 0.42 0.48
Book value per common share18.89 18.64 18.14 17.71 17.54
Cash dividend paid per common share0.28 0.28 0.25 0.30 0.24
Selected Performance Ratios:
Return on average assets1.03% 1.04% 1.08% 0.83% 0.98%
Return on average shareholders’ equity10.38 10.70 11.57 9.56 10.78
Average yield on earning assets (1)3.90 3.88 3.82 3.73 3.78
Average rate on interest bearing liabilities1.08 0.99 0.89 0.83 0.72
Net interest spread (tax-equivalent basis) (1)2.82 2.89 2.93 2.90 3.06
Net interest margin (tax-equivalent basis) (1)3.02 3.07 3.08 3.03 3.19
Average earning assets to average interest bearing liabilities123.32 121.57 120.04 119.88 120.40
Noninterest expense to average total assets1.77 1.83 1.87 1.85 2.17
Efficiency ratio (tax-equivalent basis) (1)49.99 50.26 51.60 52.00 53.88

(1) See “Non-GAAP Financial Measures.”

At or For the
Nine Months Ended
September 30,
2017 2016
Income Statement:
Total interest income$137,370 $125,233
Total interest expense31,706 20,309
Net interest income105,664 104,924
Provision for loan losses3,404 7,715
Net interest income after provision for loan losses102,260 97,209
Noninterest income
Deposit services15,845 15,519
Net gain on sale of securities available for sale874 5,512
Gain on sale of loans1,553 2,334
Trust income2,662 2,591
Bank owned life insurance income1,905 1,977
Brokerage services1,790 1,661
Other3,745 3,104
Total noninterest income28,374 32,698
Noninterest expense
Salaries and employee benefits45,229 47,784
Occupancy expense8,741 10,897
Advertising, travel & entertainment1,618 1,995
ATM and debit card expense2,840 2,316
Professional fees2,985 3,964
Software and data processing expense2,145 2,224
Telephone and communications1,461 1,359
FDIC insurance1,327 1,926
Other10,056 11,180
Total noninterest expense76,402 83,645
Income before income tax expense54,232 46,262
Income tax expense10,251 8,486
Net income$43,981 $37,776


Common share data:
Weighted-average basic shares outstanding29,326 26,976
Weighted-average diluted shares outstanding29,531 27,091
Net income per common share
Basic$1.50 $1.40
Diluted1.49 1.39
Book value per common share18.89 17.54
Cash dividend paid per common share0.81 0.71


Selected Performance Ratios:
Return on average assets1.05% 0.98%
Return on average shareholders’ equity10.87 10.87
Average yield on earning assets (1)3.87 3.92
Average yield on interest bearing liabilities0.99 0.69
Net interest spread (tax-equivalent basis) (1)2.88 3.23
Net interest margin (tax-equivalent basis) (1)3.06 3.35
Average earning assets to average interest bearing liabilities121.64 120.08
Noninterest expense to average total assets1.83 2.18
Efficiency ratio (tax-equivalent basis) (1)50.62 54.78

(1) See “Non-GAAP Financial Measures.”

Southside Bancshares, Inc.
Selected Financial Data (unaudited)
(dollars in thousands)
Three Months Ended
2017 2016
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Nonperforming assets:$9,119 $9,165 $14,079 $15,105 $16,008
Nonaccrual loans (1)3,095 3,034 7,261 8,280 8,536
Accruing loans past due more than 90 days (1) 1 6 1
Restructured loans (2)5,725 5,884 6,424 6,431 7,193
Other real estate owned298 233 367 339 237
Repossessed assets1 14 26 49 41
Asset Quality Ratios:
Nonaccruing loans to total loans0.12% 0.12% 0.29% 0.32% 0.34%
Allowance for loan losses to nonaccruing loans642.04 634.18 254.58 216.32 187.36
Allowance for loan losses to nonperforming assets217.91 209.94 131.29 118.58 99.91
Allowance for loan losses to total loans0.74 0.74 0.73 0.70 0.64
Nonperforming assets to total assets0.17 0.16 0.25 0.27 0.29
Net charge-offs to average loans0.05 0.09 0.08 0.02 0.09
Capital Ratios:
Shareholders’ equity to total assets10.14 9.81 9.40 9.32 8.65
Average shareholders’ equity to average total assets9.91 9.72 9.36 8.66 9.10

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

Loan Portfolio Composition

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

Three Months Ended
2017 2016
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
Real Estate Loans:
Construction$420,497 $386,853 $362,367 $380,175 $466,323
1-4 Family Residential609,159 615,405 622,881 637,239 644,746
Commercial1,073,646 1,033,629 974,307 945,978 759,795
Commercial Loans166,919 172,311 176,908 177,265 191,154
Municipal Loans322,286 305,023 297,417 298,583 293,949
Loans to Individuals90,259 96,977 105,038 117,297 127,674
Total Loans$2,682,766 $2,610,198 $2,538,918 $2,556,537 $2,483,641

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) for the periods presented.

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
September 30, 2017 June 30, 2017
Avg Balance Interest Income Avg Yield/Rate Avg Balance Interest Income Avg Yield/Rate
ASSETS
Loans (1) (2)$2,657,562 $30,378 4.54% $2,557,093 $29,080 4.56%
Loans held for sale5,060 47 3.69% 5,914 60 4.07%
Securities:
Investment securities (taxable) (4)11,085 58 2.08% 58,168 267 1.84%
Investment securities (tax-exempt) (3) (4)758,828 9,214 4.82% 749,259 9,386 5.02%
Mortgage-backed and related securities (4)1,550,494 10,567 2.70% 1,594,269 10,818 2.72%
Total securities2,320,407 19,839 3.39% 2,401,696 20,471 3.42%
FHLB stock, at cost, and other investments66,994 329 1.95% 66,744 299 1.80%
Interest earning deposits144,700 506 1.39% 156,124 364 0.94%
Federal funds sold4,626 21 1.80% 5,326 14 1.05%
Total earning assets5,199,349 51,120 3.90% 5,192,897 50,288 3.88%
Cash and due from banks53,220 50,961
Accrued interest and other assets360,073 358,041
Less: Allowance for loan losses(19,556) (18,495)
Total assets$5,593,086 $5,583,404
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$260,860 117 0.18% $262,009 121 0.19%
Time deposits988,380 2,878 1.16% 1,014,101 2,723 1.08%
Interest bearing demand deposits1,562,993 2,425 0.62% 1,616,036 2,294 0.57%
Total interest bearing deposits2,812,233 5,420 0.76% 2,892,146 5,138 0.71%
Short-term interest bearing liabilities1,095,968 3,382 1.22% 1,010,484 2,480 0.98%
Long-term interest bearing liabilities – FHLB Dallas149,512 778 2.06% 210,416 1,075 2.05%
Subordinated notes (5)98,190 1,413 5.71% 98,151 1,398 5.71%
Long-term debt (6)60,239 520 3.42% 60,238 494 3.29%
Total interest bearing liabilities4,216,142 11,513 1.08% 4,271,435 10,585 0.99%
Noninterest bearing deposits773,739 729,564
Accrued expenses and other liabilities48,682 39,819
Total liabilities5,038,563 5,040,818
Shareholders’ equity554,523 542,586
Total liabilities and shareholders’ equity$5,593,086 $5,583,404
Net interest income (tax-equivalent basis) (7) $39,607 $39,703
Net interest margin on average earning assets (tax-equivalent basis) (7) 3.02% 3.07%
Net interest spread (tax-equivalent basis) (7) 2.82% 2.89%

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustments of $1,103 and $1,050 for the three months ended September 30, 2017 and June 30, 2017, respectively. See “Non-GAAP Financial Measures.”

(3) Interest income includes taxable-equivalent adjustments of $3,544 and $3,229 for the three months ended September 30, 2017 and June 30, 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 for both the three months ended September 30, 2017 and 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 three months ended September 30, 2017 and June 30, 2017 reflect unamortized debt issuance costs of $72,000 and $73,000, respectively.

(7) See “Non-GAAP Financial Measures.”

Note: As of September 30, 2017 and June 30, 2017, loans totaling $3,095 and $3,034, 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.

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
March 31, 2017 December 31, 2016
Avg Balance Interest Income Avg Yield/Rate Avg Balance Interest Income 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 (tax-equivalent basis) (7) $39,690 $39,343
Net interest margin on average earning assets (tax-equivalent basis) (7) 3.08% 3.03%
Net interest spread (tax-equivalent basis) (7) 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 be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended March 31, 2017 and December 31, 2016 reflect unamortized debt issuance costs of $74,000 and $76,000, respectively.

(7) See “Non-GAAP Financial Measures.”

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.

Average Balances with Average Yields and Rates
(unaudited)
Three Months Ended
September 30, 2016
Avg Balance Interest Income Avg Yield/Rate
ASSETS
Loans (1) (2)$2,436,349 $26,750 4.37%
Loans held for sale6,718 54 3.20%
Securities:
Investment securities (taxable) (4)61,238 251 1.63%
Investment securities (tax-exempt) (3) (4)690,635 8,911 5.13%
Mortgage-backed and related securities (4)1,492,271 9,399 2.51%
Total securities2,244,144 18,561 3.29%
FHLB stock, at cost, and other investments54,085 186 1.37%
Interest earning deposits57,598 89 0.61%
Total earning assets4,798,894 45,640 3.78%
Cash and due from banks49,418
Accrued interest and other assets385,917
Less: Allowance for loan losses(14,989)
Total assets$5,219,240
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$248,364 71 0.11%
Time deposits949,019 2,073 0.87%
Interest bearing demand deposits1,634,898 1,460 0.36%
Total interest bearing deposits2,832,281 3,604 0.51%
Short-term interest bearing liabilities608,130 1,122 0.73%
Long-term interest bearing liabilities – FHLB Dallas472,470 1,857 1.56%
Subordinated notes (5)12,823 189 5.86%
Long-term debt (6)60,234 430 2.84%
Total interest bearing liabilities3,985,938 7,202 0.72%
Noninterest bearing deposits702,539
Accrued expenses and other liabilities55,783
Total liabilities4,744,260
Shareholders’ equity474,980
Total liabilities and shareholders’ equity$5,219,240
Net interest income (tax-equivalent basis) (7) $38,438
Net interest margin on average earning assets (tax-equivalent basis) (7) 3.19%
Net interest spread (tax-equivalent basis) (7) 3.06%

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustment of $1,064 for the three months ended September 30, 2016. See “Non-GAAP Financial Measures.”

(3) Interest income includes taxable-equivalent adjustment of $3,444 for the three months ended September 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) 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 reflects unamortized debt issuance costs of $77,000.

(7) See “Non-GAAP Financial Measures.”

Note: As of September 30, 2016, loans totaling $8,536 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)
Nine Months Ended
September 30, 2017 September 30, 2016
Avg Balance Interest Income Avg Yield/Rate Avg Balance Interest Income Avg Yield/Rate
ASSETS
Loans (1) (2)$2,588,358 $87,699 4.53% $2,432,652 $82,818 4.55%
Loans held for sale5,992 155 3.46% 5,100 126 3.30%
Securities:
Investment securities (taxable) (4)51,645 702 1.82% 41,708 572 1.83%
Investment securities (tax-exempt) (3) (4)762,543 28,529 5.00% 661,430 26,041 5.26%
Mortgage-backed and related securities (4)1,571,685 31,430 2.67% 1,465,923 28,156 2.57%
Total securities2,385,873 60,661 3.40% 2,169,061 54,769 3.37%
FHLB stock, at cost, and other investments66,763 926 1.85% 54,051 588 1.45%
Interest earning deposits154,289 1,216 1.05% 55,378 220 0.53%
Federal funds sold5,713 49 1.15%
Total earning assets5,206,988 150,706 3.87% 4,716,242 138,521 3.92%
Cash and due from banks52,568 50,738
Accrued interest and other assets356,212 378,000
Less: Allowance for loan losses(18,732) (19,136)
Total assets$5,597,036 $5,125,844
LIABILITIES AND SHAREHOLDERS’ EQUITY
Savings deposits$258,568 330 0.17% $242,852 204 0.11%
Time deposits976,919 7,828 1.07% 946,986 5,723 0.81%
Interest bearing demand deposits1,628,477 6,681 0.55% 1,693,135 4,448 0.35%
Total interest bearing deposits2,863,964 14,839 0.69% 2,882,973 10,375 0.48%
Short-term interest bearing liabilities1,038,326 7,927 1.02% 469,831 2,724 0.77%
Long-term interest bearing liabilities – FHLB Dallas220,007 3,255 1.98% 510,392 5,770 1.51%
Subordinated notes (5)98,153 4,204 5.73% 4,305 189 5.86%
Long-term debt (6)60,238 1,481 3.29% 60,233 1,251 2.77%
Total interest bearing liabilities4,280,688 31,706 0.99% 3,927,734 20,309 0.69%
Noninterest bearing deposits732,637 685,982
Accrued expenses and other liabilities42,749 48,120
Total liabilities5,056,074 4,661,836
Shareholders’ equity540,962 464,008
Total liabilities and shareholders’ equity$5,597,036 $5,125,844
Net interest income (tax-equivalent basis) (7) $119,000 $118,212
Net interest margin on average earning assets (tax-equivalent basis) (7) 3.06% 3.35%
Net interest spread (tax-equivalent basis) (7) 2.88% 3.23%

(1) Interest on loans includes net fees on loans that are not material in amount.

(2) Interest income includes taxable-equivalent adjustments of $3,188 and $3,206 for the nine months ended September 30, 2017 and 2016, respectively. See “Non-GAAP Financial Measures.”

(3) Interest income includes taxable-equivalent adjustments of $10,148 and $10,082 for the nine months ended September 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 $1.8 million and $74,000 for the nine months ended September 30, 2017 and 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 nine months ended September 30, 2017 and 2016 reflect unamortized debt issuance costs of $73,000 and $78,000, respectively.

(7) See “Non-GAAP Financial Measures.”

Note: As of September 30, 2017 and 2016, loans totaling $3,095 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.

Source:Southside Bancshares, Inc.