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Southside Bancshares, Inc. Announces Financial Results for the Three Months and Year Ended December 31, 2017

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TYLER, Texas, Feb. 06, 2018 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (NASDAQ:SBSI) today reported its financial results for the three months and year ended December 31, 2017.

Southside reported net income of $10.3 million for the three months ended December 31, 2017, a decrease of $1.2 million, or 10.7%, compared to $11.6 million for the same period in 2016.  Southside reported net income of $54.3 million for the year ended December 31, 2017, an increase of $5.0 million, or 10.1%, compared to $49.3 million for the same period in 2016.

Diluted earnings per common share were $0.33 for the three months ended December 31, 2017, a decrease of $0.09, or 21.4%, compared to $0.42 for the three months ended December 31, 2016.  For the year ended December 31, 2017, diluted earnings per common share were $1.81, the same as for the year ended 2016.

The return on average shareholders' equity for the year ended December 31, 2017 was 9.65%, compared to 10.54% for the same period in 2016.  The return on average assets was 0.96% for the year ended December 31, 2017, compared to 0.94% for the same period in 2016.

"Continued solid performance and the closing of our Diboll transaction during the fourth quarter provided a nice finish to 2017," stated Lee R. Gibson, President and Chief Executive Officer of Southside.  "Earnings per share (diluted) for the fourth quarter were negatively impacted $0.08 due to acquisition cost, net of tax, related to the Diboll transaction.  We were also required to recalculate our net deferred tax asset during the fourth quarter to account for the lower corporate tax rates and the reduced future deductions as a result of the Tax Cuts and Jobs Act passed in December 2017.  This recalculation resulted in a non-cash tax charge that negatively impacted earnings $0.08 per diluted common share for the fourth quarter.  The reduction in corporate tax rates is expected to positively impact earnings in 2018 and in future years."

"Many of our customers have become more optimistic about their economic future as a result of the reduced regulatory burden and the anticipated benefits from lower tax rates.  Loans, excluding acquired loans, increased 4.6% during 2017 while maintaining strong asset quality with nonperforming assets at 0.16% of total assets.  The economic conditions in Texas, including our market areas, remain solid with the Austin and DFW markets continuing to perform exceptionally well."

"The completion of the Diboll transaction, healthy, growing markets and tax rate cuts, all provide us a solid foundation on which to build in 2018. I want to thank all of our customers, shareholders, team members and directors for making Southside the success it is today."

Loans and Deposits

For the year ended December 31, 2017, total loans increased by $737.8 million, or 28.9%, compared to December 31, 2016, with approximately $621.3 million the result of the consummation of the Diboll merger in the fourth quarter.  The net increase in our loans was comprised primarily of increases of $319.2 million of commercial real estate loans, $168.1 million of 1-4 family residential loans, $95.7 million of construction loans, $89.2 million of commercial loans, $47.2 million of municipal loans, and $18.5 million of loans to individuals.  Oil and gas industry loans totaled 1.50% of the loan portfolio at December 31, 2017, compared to 1.09% at December 31, 2016.

Nonperforming assets decreased during the year ended December 31, 2017 by $4.6 million, or 30.7%, to $10.5 million, or 0.16% of total assets, compared to $15.1 million, or 0.27% of total assets at December 31, 2016, due to the payoff of several nonaccrual commercial loans during 2017.

During the year ended December 31, 2017, the allowance for loan losses increased by $2.9 million, or 16.0%, to $20.8 million, or 0.63% of total loans, compared to 0.70% of total loans at December 31, 2016.  The decrease in the allowance as a percentage of total loans was due to the fact that there was no allowance for loan losses recorded for the Diboll loans since credit quality was considered in the fair valuing of loans and the timing of the completion of the merger on November 30, 2017, in relation to year end.

For the year ended December 31, 2017, deposits, net of brokered deposits, increased $956.2 million, or 27.3%, compared to December 31, 2016, primarily due to approximately $899.3 million of deposits assumed in the Diboll merger.

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

Net interest income increased $3.7 million, or 10.6%, to $38.3 million for the three months ended December 31, 2017, compared to $34.6 million for the same period in 2016.  The increase in net interest income was the result of a $6.4 million increase in interest income primarily from our loan portfolio, partially offset by the increase in interest expense of $2.8 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016.  For the three months ended December 31, 2017, our net interest spread increased slightly to 2.91%, compared to 2.90% for the same period in 2016.  Our net interest margin increased to 3.12% for the three months ended December 31, 2017, compared to 3.03% for the same period in 2016, due to the increase in net interest income and earning assets partially offset by the increase in average rates paid on interest bearing liabilities.  The increase in average rates paid on interest bearing liabilities was primarily due to overall higher interest rates during 2017.  The increase in the average yield on earning assets during the three months ended December 31, 2017 was the result of increases in the average yields on most of the earning asset categories partially offset by the decrease in the average yield on tax-exempt investment securities.  The net interest spread and margin increased on a linked quarter basis from 2.82% and 3.02%, respectively, for the three months ended September 30, 2017, to 2.91% and 3.12%, respectively, for the three months ended December 31, 2017.

Net Interest Income for the Year Ended December 31, 2017

Net interest income increased $4.4 million, or 3.2%, to $144.0 million for the year ended December 31, 2017, compared to $139.6 million for the same period in 2016.  The increase in net interest income was the result of an $18.6 million increase in interest income on loans and the securities portfolio, partially offset by the increase in interest expense of $14.2 million associated with our deposits and other interest bearing liabilities, compared to the same period in 2016.  For the year ended December 31, 2017, our net interest spread decreased to 2.89%, compared to 3.14% for the same period in 2016.  Our net interest margin decreased to 3.07% for the year ended December 31, 2017, compared to 3.26% 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 non-recurring purchase accretion on the certificate of deposit premium during 2016.  The increase in the average yield on earning assets during the year ended December 31, 2017 was the result of increases in the average yields on most of the earning asset categories partially offset by the decrease in the average yield on tax-exempt investment securities combined with the recognition of $1.3 million of interest income on the payoff of a long-term nonaccrual loan during 2016 that did not recur in 2017.

Net Income for the Three Months Ended December 31, 2017

Net income decreased $1.2 million, or 10.7%, for the three months ended December 31, 2017, to $10.3 million compared to the same period in 2016.  The decrease was primarily the result of a $4.1 million increase in noninterest expense, a $4.0 million increase in income tax expense and a $2.8 million increase in interest expense, partially offset by a $6.4 million increase in interest income, a $2.4 million increase in noninterest income and a $0.8 million decrease in provision for loan losses.

Noninterest income increased $2.4 million, or 35.5%, for the three months ended December 31, 2017, compared to the same period in 2016, due to a decrease in the net loss on sale of securities available for sale and an increase in deposit services income, partially offset by a decrease in other noninterest income.  Other noninterest income decreased primarily due to a decrease in mortgage servicing fee income.

Noninterest expense increased $4.1 million, or 15.7%, for the three months ended December 31, 2017, compared to the same period in 2016, primarily due to acquisition expense of $3.5 million incurred in connection with the Diboll merger.

The increase in income tax expense for the three months ended December 31, 2017 of $4.0 million, or 219.2%, was primarily attributable to $2.4 million associated with the recalculation of our net deferred tax assets as of December 31, 2017 in accordance with the Tax Cuts and Jobs Act and a higher effective tax rate of 21.3%, excluding the effect of the recalculation of our net deferred tax assets, compared to 13.7% for the same three month period in 2016.

Net Income for the Year Ended December 31, 2017

Net income increased $5.0 million, or 10.1%, for the year ended December 31, 2017, to $54.3 million compared to the same period in 2016.  The increase was primarily the result of an $18.6 million increase in interest income, a $5.1 million decrease in provision for loan losses and a $3.2 million decrease in noninterest expense, partially offset by a $14.2 million increase in interest expense, a $5.8 million increase in income tax expense and a $1.9 million decrease in noninterest income.

Noninterest income decreased $1.9 million, or 4.9%, for the year ended December 31, 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 an increase in deposit services income.

Noninterest expense decreased $3.2 million, or 2.9%, for the year ended December 31, 2017, compared to the same period in 2016.  The decrease is attributable to a reduction in salaries and employee benefits of $3.5 million, occupancy expense of $1.7 million, other noninterest expense of $1.3 million and professional fees of $1.1 million, partially offset by acquisition expense of $4.4 million incurred in connection with the Diboll merger.  The decrease in salaries and employee benefits is primarily due to decreases in direct salary expense and retirement expense which included a one-time expense of $1.7 million related to the acceptance of early retirement packages of 16 employees during the year ended December 31, 2016.  The decrease in occupancy expense is due to the early termination of a lease during the third quarter of 2016.  Other noninterest expense decreased primarily due to reductions in the provision expense for losses on loans sold with recourse and unfunded loan commitments, repossessed assets expense and losses on other real estate owned.  Professional fees decreased due to less consulting fees associated with cost containment and process improvement efforts initiated in January 2016.

The increase in income tax expense for the year ended December 31, 2017 of $5.8 million, or 56.1%, was attributable to $2.4 million associated with the recalculation of our net deferred tax assets as of December 31, 2017 in accordance with the Tax Cuts and Jobs Act and a higher effective tax rate of 19.5%, excluding the effect of the recalculation of our net deferred tax assets, compared to 17.3% for the same period in 2016.

Conference Call

Southside's management team will host a conference call to discuss its fourth quarter and year end December 31, 2017 financial results on Tuesday, February 6, 2018 at 9:00 a.m. CST.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 8799149 or by identifying "Southside Bancshares, Inc., Fourth Quarter and Year End 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 will be available from approximately 3:00 p.m. CST February 6, 2018 through February 18, 2018 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 (FTE): (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.

In the following table we present, for the years ended December 31, 2017 and 2016 and for five quarterly periods ended December 31, 2017, the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 35.00% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investment securities (dollars in thousands), along with the calculation of total revenue, adjusted noninterest expense, efficiency ratio (FTE), net interest margin (FTE) and net interest spread (FTE).

    Three Months Ended   Years Ended
    2017   2016   2017   2016
    Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Dec. 31,   Dec. 31,
Net interest income (GAAP)   $ 38,306     $ 34,960     $ 35,424     $ 35,280     $ 34,641     $ 143,970     $ 139,565  
Tax equivalent adjustments:                            
Loans (1)   1,125     1,103     1,050     1,035     1,045     4,313     4,251  
Investment securities (tax-exempt) (2)   3,049     3,544     3,229     3,375     3,657     13,197     13,739  
Net interest income (FTE) (3)   42,480     39,607     39,703     39,690     39,343     161,480     157,555  
Noninterest income   9,099     9,408     9,293     9,673     6,713     37,473     39,411  
Nonrecurring income (4)   483     (627 )   75     (122 )   2,776     (191 )   (2,426 )
Total revenue   $ 52,062     $ 48,388     $ 49,071     $ 49,241     $ 48,832     $ 198,762     $ 194,540  
                             
Noninterest expense   $ 29,933     $ 25,007     $ 25,537     $ 25,858     $ 25,877     $ 106,335     $ 109,522  
Pre-tax amortization expense   (726 )   (388 )   (410 )   (431 )   (452 )   (1,955 )   (1,940 )
Nonrecurring expense (5)   (3,479 )   (432 )   (466 )   (17 )   (31 )   (4,394 )   (2,375 )
Adjusted noninterest expense   $ 25,728     $ 24,187     $ 24,661     $ 25,410     $ 25,394     $ 99,986     $ 105,207  
                             
Efficiency ratio   53.73 %   55.30 %   55.06 %   56.68 %   57.54 %   55.16 %   59.59 %
Efficiency ratio (FTE) (3)   49.42 %   49.99 %   50.26 %   51.60 %   52.00 %   50.30 %   54.08 %
                             
Average earning assets   $ 5,395,212     $ 5,199,349     $ 5,192,897     $ 5,229,045     $ 5,165,383     $ 5,254,431     $ 4,829,141  
                             
Net interest margin   2.82 %   2.67 %   2.74 %   2.74 %   2.67 %   2.74 %   2.89 %
Net interest margin (FTE) (3)   3.12 %   3.02 %   3.07 %   3.08 %   3.03 %   3.07 %   3.26 %
                             
Net interest spread   2.60 %   2.47 %   2.56 %   2.59 %   2.53 %   2.56 %   2.77 %
Net interest spread (FTE) (3)   2.91 %   2.82 %   2.89 %   2.93 %   2.90 %   2.89 %   3.14 %

(1)   Interest on loans includes net fees on loans that are not material in amount.
(2)   For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(3)   These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(4)   Includes net gains and losses on sale of available for sale investment securities, impairment of investments, other-than-temporary impairment charges and lease termination losses.
(5)   Includes acquisition expenses, amortization of intangibles, lease termination expenses, foreclosure expenses and FHLB prepayment penalties.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.5 billion in assets as of December 31, 2017, that owns 100% of Southside Bank.  Southside Bank currently has 60 banking centers in Texas and operates a network of 84 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, or the successful integration of completed acquisitions and certain market risk disclosures, including the impact of interest rates, tax reform 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
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
ASSETS                  
Cash and due from banks $ 79,171     $ 57,947     $ 56,033     $ 54,345     $ 59,363  
Interest earning deposits 111,541     120,996     175,039     185,289     102,251  
Federal funds sold 7,980     5,570     4,760     7,360     8,040  
Securities available for sale, at estimated fair value 1,538,755     1,292,072     1,397,811     1,444,043     1,479,600  
Securities held to maturity, at carrying value 909,506     909,844     925,538     929,793     937,487  
Federal Home Loan Bank stock, at cost 55,729     61,845     61,561     61,305     61,084  
Loans held for sale 2,001     2,177     3,036     5,303     7,641  
Loans 3,294,356     2,682,766     2,610,198     2,538,918     2,556,537  
Less: Allowance for loan losses (20,781 )   (19,871 )   (19,241 )   (18,485 )   (17,911 )
Net loans 3,273,575     2,662,895     2,590,957     2,520,433     2,538,626  
Premises & equipment, net 133,640     107,099     105,938     105,327     106,003  
Goodwill 201,246     91,520     91,520     91,520     91,520  
Other intangible assets, net 22,993     3,379     3,767     4,177     4,608  
Bank owned life insurance 100,368     99,616     99,011     98,377     97,775  
Other assets 61,592     69,470     63,511     148,977     69,769  
Total assets $ 6,498,097     $ 5,484,430     $ 5,578,482     $ 5,656,249     $ 5,563,767  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Noninterest bearing deposits $ 1,037,401     $ 781,701     $ 757,353     $ 753,224     $ 704,013  
Interest bearing deposits 3,478,046     2,782,474     2,866,720     2,952,072     2,829,063  
Total deposits 4,515,447     3,564,175     3,624,073     3,705,296     3,533,076  
Other borrowings 1,026,859     1,151,639     1,186,506     1,213,670     1,316,743  
Subordinated notes, net of unamortized debt issuance costs 98,248     98,209     98,171     98,133     98,100  
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,241     60,240     60,238     60,237     60,236  
Other liabilities 43,162     54,144     62,429     47,447     37,338  
Total liabilities 5,743,957     4,928,407     5,031,417     5,124,783     5,045,493  
Shareholders' equity 754,140     556,023     547,065     531,466     518,274  
Total liabilities and shareholders' equity $ 6,498,097     $ 5,484,430     $ 5,578,482     $ 5,656,249     $ 5,563,767  


  At or For the Three Months Ended
  2017   2016
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
Income Statement:                  
Total interest income $ 50,104     $ 46,473     $ 46,009     $ 44,888     $ 43,680  
Total interest expense 11,798     11,513     10,585     9,608     9,039  
Net interest income 38,306     34,960     35,424     35,280     34,641  
Provision for loan losses 1,271     960     1,346     1,098     2,065  
Net interest income after provision for loan losses 37,035     34,000     34,078     34,182     32,576  
Noninterest income                  
Deposit services 5,940     5,476     5,255     5,114     5,183  
Net (loss) gain on sale of securities available for sale (249 )   627     (75 )   322     (2,676 )
Gain on sale of loans 268     347     505     701     461  
Trust income 1,156     873     899     890     900  
Bank owned life insurance income 632     636     635     634     649  
Brokerage services 632     561     682     547     466  
Other 720     888     1,392     1,465     1,730  
Total noninterest income 9,099     9,408     9,293     9,673     6,713  
Noninterest expense                  
Salaries and employee benefits 15,246     14,395     14,915     15,919     16,194  
Occupancy expense 3,327     2,981     2,897     2,863     2,825  
Acquisition expense 3,474     405     473          
Advertising, travel & entertainment 601     487     548     583     648  
ATM and debit card expense 1,049     1,024     889     927     820  
Professional fees 859     996     1,050     939     982  
Software and data processing expense 882     732     688     725     687  
Telephone and communications 444     459     476     526     572  
FDIC insurance 442     441     445     441     215  
Amortization expense on intangibles 726     388     410     431     452  
Other 2,883     2,699     2,746     2,504     2,482  
Total noninterest expense 29,933     25,007     25,537     25,858     25,877  
Income before income tax expense 16,201     18,401     17,834     17,997     13,412  
Income tax expense 5,870     3,890     3,353     3,008     1,839  
Net income $ 10,331     $ 14,511     $ 14,481     $ 14,989     $ 11,573  
                   
Common share data:      
Weighted-average basic shares outstanding 31,370     29,370     29,318     29,288     27,542  
Weighted-average diluted shares outstanding 31,569     29,570     29,519     29,504     27,731  
Shares outstanding end of period 35,000     29,433     29,344     29,306     29,261  
Net income per common share                  
Basic $ 0.33     $ 0.49     $ 0.49     $ 0.51     $ 0.42  
Diluted 0.33     0.49     0.49     0.51     0.42  
Book value per common share 21.55     18.89     18.64     18.14     17.71  
Cash dividend paid per common share 0.30     0.28     0.28     0.25     0.30  
                   
Selected Performance Ratios:                  
Return on average assets 0.70 %   1.03 %   1.04 %   1.08 %   0.83 %
Return on average shareholders' equity 6.52     10.38     10.70     11.57     9.56  
Average yield on earning assets (1) 3.99     3.90     3.88     3.82     3.73  
Average rate on interest bearing liabilities 1.08     1.08     0.99     0.89     0.83  
Net interest spread (FTE) (1) 2.91     2.82     2.89     2.93     2.90  
Net interest margin (FTE) (1) 3.12     3.02     3.07     3.08     3.03  
Average earning assets to average interest bearing liabilities 124.73     123.32     121.57     120.04     119.88  
Noninterest expense to average total assets 2.03     1.77     1.83     1.87     1.85  
Efficiency ratio (FTE) (1) 49.42     49.99     50.26     51.60     52.00  

(1)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.


  At or For the
Year Ended
  December 31,
  2017   2016
Income Statement:      
Total interest income $ 187,474     $ 168,913  
Total interest expense 43,504     29,348  
Net interest income 143,970     139,565  
Provision for loan losses 4,675     9,780  
Net interest income after provision for loan losses 139,295     129,785  
Noninterest income      
Deposit services 21,785     20,702  
Net gain on sale of securities available for sale 625     2,836  
Gain on sale of loans 1,821     2,795  
Trust income 3,818     3,491  
Bank owned life insurance income 2,537     2,626  
Brokerage services 2,422     2,127  
Other 4,465     4,834  
Total noninterest income 37,473     39,411  
Noninterest expense      
Salaries and employee benefits 60,475     63,978  
Occupancy expense 12,068     13,722  
Acquisition expense 4,352      
Advertising, travel & entertainment 2,219     2,643  
ATM and debit card expense 3,889     3,136  
Professional fees 3,844     4,946  
Software and data processing expense 3,027     2,911  
Telephone and communications 1,905     1,931  
FDIC insurance 1,769     2,141  
Amortization expense on intangibles 1,955     1,940  
Other 10,832     12,174  
Total noninterest expense 106,335     109,522  
Income before income tax expense 70,433     59,674  
Income tax expense 16,121     10,325  
Net income $ 54,312     $ 49,349  


Common share data:    
Weighted-average basic shares outstanding 29,841     27,118  
Weighted-average diluted shares outstanding 30,047     27,247  
Net income per common share      
Basic $ 1.82     $ 1.82  
Diluted 1.81     1.81  
Book value per common share 21.55     17.71  
Cash dividend paid per common share 1.11     1.01  


Selected Performance Ratios:      
Return on average assets 0.96 %   0.94 %
Return on average shareholders' equity 9.65     10.54  
Average yield on earning assets (1) 3.90     3.87  
Average yield on interest bearing liabilities 1.01     0.73  
Net interest spread (FTE) (1) 2.89     3.14  
Net interest margin (FTE) (1) 3.07     3.26  
Average earning assets to average interest bearing liabilities 122.42     120.02  
Noninterest expense to average total assets 1.88     2.09  
Efficiency ratio (FTE) (1) 50.30     54.08  

(1)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.


   
  Southside Bancshares, Inc.
  Selected Financial Data (unaudited)
  (dollars in thousands)
                   
  Three Months Ended
       
  2017   2016
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
Nonperforming assets: $ 10,472     $ 9,119     $ 9,165     $ 14,079     $ 15,105  
Nonaccrual loans (1) 2,937     3,095     3,034     7,261     8,280  
Accruing loans past due more than 90 days (1) 1             1     6  
Restructured loans (2) 5,767     5,725     5,884     6,424     6,431  
Other real estate owned 1,613     298     233     367     339  
Repossessed assets 154     1     14     26     49  
                   
Asset Quality Ratios:                  
Nonaccruing loans to total loans 0.09 %   0.12 %   0.12 %   0.29 %   0.32 %
Allowance for loan losses to nonaccruing loans 707.56     642.04     634.18     254.58     216.32  
Allowance for loan losses to nonperforming assets 198.44     217.91     209.94     131.29     118.58  
Allowance for loan losses to total loans 0.63     0.74     0.74     0.73     0.70  
Nonperforming assets to total assets 0.16     0.17     0.16     0.25     0.27  
Net charge-offs to average loans 0.05     0.05     0.09     0.08     0.02  
                   
Capital Ratios:                  
Shareholders' equity to total assets 11.61     10.14     9.81     9.40     9.32  
Average shareholders' equity to average total assets 10.75     9.91     9.72     9.36     8.66  

(1)  Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition.
(2)  Includes $2.9 million, $3.0 million, $3.0 million, $3.0 million, and $3.1 million in PCI loans restructured as of December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively.

Loan Portfolio Composition

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

  Three Months Ended
  2017   2016
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
Real Estate Loans:                  
Construction $ 475,867     $ 420,497     $ 386,853     $ 362,367     $ 380,175  
1-4 Family Residential 805,341     609,159     615,405     622,881     637,239  
Commercial 1,265,159     1,073,646     1,033,629     974,307     945,978  
Commercial Loans 266,422     166,919     172,311     176,908     177,265  
Municipal Loans 345,798     322,286     305,023     297,417     298,583  
Loans to Individuals 135,769     90,259     96,977     105,038     117,297  
Total Loans $ 3,294,356     $ 2,682,766     $ 2,610,198     $ 2,538,918     $ 2,556,537  

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.  The interest and related yields presented are on a fully taxable-equivalent basis (FTE) and are therefore-non-GAAP measures.

  Average Balances with Average Yields and Rates
  (unaudited)
  Three Months Ended
  December 31, 2017   September 30, 2017
  Avg Balance   Interest   Avg Yield/Rate   Avg Balance   Interest   Avg Yield/Rate
ASSETS                      
Loans (1) (2) $ 2,897,444     $ 34,070     4.67 %   $ 2,657,562     $ 30,378     4.54 %
Loans held for sale 2,285     22     3.82 %   5,060     47     3.69 %
Securities:                      
Investment securities (taxable) (4) 51,678     237     1.82 %   11,085     58     2.08 %
Investment securities (tax-exempt) (3) (4) 775,681     9,197     4.70 %   758,828     9,214     4.82 %
Mortgage-backed and related securities (4) 1,461,159     9,931     2.70 %   1,550,494     10,567     2.70 %
Total securities 2,288,518     19,365     3.36 %   2,320,407     19,839     3.39 %
FHLB stock, at cost, and other investments 67,127     380     2.25 %   66,994     329     1.95 %
Interest earning deposits 133,007     418     1.25 %   144,700     506     1.39 %
Federal funds sold 6,831     23     1.34 %   4,626     21     1.80 %
Total earning assets 5,395,212     54,278     3.99 %   5,199,349     51,120     3.90 %
Cash and due from banks 60,590             53,220          
Accrued interest and other assets 410,528             360,073          
Less: Allowance for loan losses (19,963 )           (19,556 )        
Total assets $ 5,846,367             $ 5,593,086          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 293,392     134     0.18 %   $ 260,860     117     0.18 %
Time deposits 1,031,008     3,178     1.22 %   988,380     2,878     1.16 %
Interest bearing demand deposits 1,696,239     2,585     0.60 %   1,562,993     2,425     0.62 %
Total interest bearing deposits 3,020,639     5,897     0.77 %   2,812,233     5,420     0.76 %
FHLB borrowings 1,137,373     3,935     1.37 %   1,237,055     4,156     1.33 %
Subordinated notes (5) 98,229     1,429     5.77 %   98,190     1,413     5.71 %
Trust preferred subordinated debentures (6) 60,240     532     3.50 %   60,239     520     3.42 %
Other borrowings 9,157     5     0.22 %   8,425     4     0.19 %
Total interest bearing liabilities 4,325,638     11,798     1.08 %   4,216,142     11,513     1.08 %
Noninterest bearing deposits 846,632             773,739          
Accrued expenses and other liabilities 45,613             48,682          
Total liabilities 5,217,883             5,038,563          
Shareholders' equity 628,484             554,523          
Total liabilities and shareholders' equity $ 5,846,367             $ 5,593,086          
Net interest income (FTE) (7)     $ 42,480             $ 39,607      
Net interest margin on average earning assets (FTE) (7)         3.12 %           3.02 %
Net interest spread (FTE) (7)         2.91 %           2.82 %

(1)  Interest on loans includes net fees on loans that are not material in amount.
(2)  Interest income includes taxable-equivalent adjustments of $1,125 and $1,103 for the three months ended December 31, 2017 and September 30, 2017, respectively.  See "Non-GAAP Financial Measures."
(3)  Interest income includes taxable-equivalent adjustments of $3,049 and $3,544 for the three months ended December 31, 2017 and September 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 December 31, 2017 and September 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 December 31, 2017 and September 30, 2017 reflect unamortized debt issuance costs of $71,000 and $72,000, respectively.
(7)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.

Note:  As of December 31, 2017 and September 30, 2017, loans totaling $2,937 and $3,095, 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
  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 %
FHLB borrowings 1,213,016     3,551     1.17 %   1,302,335     3,464     1.08 %
Subordinated notes (5) 98,151     1,398     5.71 %   98,117     1,393     5.76 %
Trust preferred subordinated debentures (6) 60,238     494     3.29 %   60,237     467     3.14 %
Other borrowings 7,884     4     0.20 %   6,986     3     0.17 %
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 (FTE) (7)     $ 39,703             $ 39,690      
Net interest margin on average earning assets (FTE) (7)         3.07 %           3.08 %
Net interest spread (FTE) (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)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.

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.

   
  Average Balances with Average Yields and Rates
  (unaudited)
  Three Months Ended
  December 31, 2016
  Avg Balance   Interest   Avg Yield/Rate
ASSETS          
Loans (1) (2) $ 2,512,820     $ 27,835     4.41 %
Loans held for sale 4,845     36     2.96 %
Securities:          
Investment securities (taxable) (4) 115,057     485     1.68 %
Investment securities (tax-exempt) (3) (4) 812,771     10,352     5.07 %
Mortgage-backed and related securities (4) 1,520,045     9,294     2.43 %
Total securities 2,447,873     20,131     3.27 %
FHLB stock, at cost, and other investments 62,087     210     1.35 %
Interest earning deposits 134,786     165     0.49 %
Federal funds sold 2,972     5     0.67 %
Total earning assets 5,165,383     48,382     3.73 %
Cash and due from banks 52,415          
Accrued interest and other assets 359,217          
Less: Allowance for loan losses (16,467 )        
Total assets $ 5,560,548          
LIABILITIES AND SHAREHOLDERS' EQUITY          
Savings deposits $ 250,706     76     0.12 %
Time deposits 926,021     2,261     0.97 %
Interest bearing demand deposits 1,646,535     1,543     0.37 %
Total interest bearing deposits 2,823,262     3,880     0.55 %
FHLB borrowings 1,318,091     3,264     0.99 %
Subordinated notes (5) 98,011     1,439     5.84 %
Trust preferred subordinated debentures (6) 60,235     455     3.01 %
Other borrowings 9,061     1     0.04 %
Total interest bearing liabilities 4,308,660     9,039     0.83 %
Noninterest bearing deposits 717,599          
Accrued expenses and other liabilities 52,714          
Total liabilities 5,078,973          
Shareholders' equity 481,575          
Total liabilities and shareholders' equity $ 5,560,548          
Net interest income (FTE) (7)     $ 39,343      
Net interest margin on average earning assets (FTE) (7)         3.03 %
Net interest spread (FTE) (7)         2.90 %

(1)  Interest on loans includes net fees on loans that are not material in amount.
(2)  Interest income includes taxable-equivalent adjustment of $1,045 for the three months ended December 31, 2016.  See "Non-GAAP Financial Measures."
(3)  Interest income includes taxable-equivalent adjustment of $3,657 for the three months ended December 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)  The unamortized discount and debt issuance costs reflected in the carrying amount of the subordinated notes totaled approximately $2.0 million for the three months ended December 31, 2016.
(6)  Represents issuance of junior subordinated debentures.  In connection with the adoption of ASU 2015-03 that requires unamortized debt issuance costs be presented as a direct deduction from the related debt liability, our average long-term debt for the three months ended December 31, 2016 reflects unamortized debt issuance costs of $76,000.
(7)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.

Note:  As of December 31, 2016, loans totaling $8,280 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)
  Years Ended
  December 31, 2017   December 31, 2016
  Avg Balance   Interest   Avg Yield/Rate   Avg Balance   Interest   Avg Yield/Rate
ASSETS                      
Loans (1) (2) $ 2,666,265     $ 121,769     4.57 %   $ 2,452,803     $ 110,653     4.51 %
Loans held for sale 5,058     177     3.50 %   5,036     162     3.22 %
Securities:                      
Investment securities (taxable) (4) 51,654     939     1.82 %   60,145     1,057     1.76 %
Investment securities (tax-exempt) (3) (4) 765,854     37,726     4.93 %   699,472     36,393     5.20 %
Mortgage-backed and related securities (4) 1,543,826     41,361     2.68 %   1,479,528     37,450     2.53 %
Total securities 2,361,334     80,026     3.39 %   2,239,145     74,900     3.35 %
FHLB stock, at cost, and other investments 66,855     1,306     1.95 %   56,071     798     1.42 %
Interest earning deposits 148,924     1,634     1.10 %   75,339     385     0.51 %
Federal funds sold 5,995     72     1.20 %   747     5     0.67 %
Total earning assets 5,254,431     204,984     3.90 %   4,829,141     186,903     3.87 %
Cash and due from banks 54,590             51,160          
Accrued interest and other assets 369,872             373,278          
Less: Allowance for loan losses (19,042 )           (18,465 )        
Total assets $ 5,659,851             $ 5,235,114          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 267,345     464     0.17 %   $ 244,826     280     0.11 %
Time deposits 990,553     11,006     1.11 %   941,716     7,984     0.85 %
Interest bearing demand deposits 1,645,557     9,266     0.56 %   1,681,422     5,991     0.36 %
Total interest bearing deposits 2,903,455     20,736     0.71 %   2,867,964     14,255     0.50 %
FHLB borrowings 1,222,033     15,106     1.24 %   1,060,631     11,751     1.11 %
Subordinated notes (5) 98,172     5,633     5.74 %   27,860     1,628     5.84 %
Trust preferred subordinated debentures (6) 60,238     2,013     3.34 %   60,233     1,706     2.83 %
Other borrowings 8,120     16     0.20 %   6,798     8     0.12 %
Total interest bearing liabilities 4,292,018     43,504     1.01 %   4,023,486     29,348     0.73 %
Noninterest bearing deposits 761,370             693,929          
Accrued expenses and other liabilities 43,440             49,275          
Total liabilities 5,096,828             4,766,690          
Shareholders' equity 563,023             468,424          
Total liabilities and shareholders' equity $ 5,659,851             $ 5,235,114          
Net interest income (FTE) (7)     $ 161,480             $ 157,555      
Net interest margin on average earning assets (FTE) (7)         3.07 %           3.26 %
Net interest spread (FTE) (7)         2.89 %           3.14 %

(1)  Interest on loans includes net fees on loans that are not material in amount.
(2)  Interest income includes taxable-equivalent adjustments of $4,313 and $4,251 for the years ended December 31, 2017 and 2016, respectively.  See "Non-GAAP Financial Measures."
(3)  Interest income includes taxable-equivalent adjustments of $13,197 and $13,739 for years ended December 31, 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 $555,000 for the years ended December 31, 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 years ended December 31, 2017 and 2016 reflect unamortized debt issuance costs of $73,000 and $77,000, respectively.
(7)  These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.

Note:  As of December 31, 2017 and 2016, loans totaling $2,937 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.

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