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Southside Bancshares, Inc. Announces Financial Results for the Three and Six Months Ended June 30, 2018

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TYLER, Texas, July 27, 2018 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (NASDAQ:SBSI) today reported its financial results for the three and six months ended June 30, 2018.

Southside reported net income of $20.2 million for the three months ended June 30, 2018, an increase of $5.7 million, or 39.5%, compared to $14.5 million for the same period in 2017.  Southside reported net income of $36.5 million for the six months ended June 30, 2018, an increase of $7.0 million, or 23.7%, compared to $29.5 million for the same period in 2017.

Earnings per diluted common share increased $0.08, or 16.3%, to $0.57 for the three months ended June 30, 2018, from $0.49 for the same period in 2017.  Earnings per diluted common share increased $0.04, or 4.0%, to $1.04 for the six months ended June 30, 2018, from $1.00 for the same period in 2017.

The return on average shareholders' equity for the six months ended June 30, 2018 was 9.77%, compared to 11.13% for the same period in 2017.  The return on average assets was 1.16% for the six months ended June 30, 2018, compared to 1.06% for the same period in 2017.

"Southside experienced an excellent second quarter highlighted by our financial results and the completion of the Diboll Bancshares, Inc. integration," stated Lee R. Gibson, President and Chief Executive Officer of Southside.  "We reported record net income during the second quarter of $20.2 million, an efficiency ratio below 50% and maintained the net interest margin on a linked quarter basis at 3.19%, notwithstanding a slight reduction in average loans.  During the quarter we recorded acquisition costs related to the Diboll transaction of $1.0 million, a $332,000 loss on the sale of available for sale securities and a death benefit of $636,000 in bank owned life insurance income.  We expect to realize substantially all of the efficiencies and the associated cost savings of the Diboll integration during the third quarter."

"During the second quarter loan payoffs exceeded loans funded by $39 million.  Our loan pipeline looks promising for the remainder of the year as a number of loans are expected to fund; however, we expect additional payoffs that will offset a portion of the new funding's.  Economic conditions in East Texas remain solid and the Austin and DFW economies, fueled by company relocations and overall population growth, continue to be robust."

Loans and Deposits

For the six months ended June 30, 2018, total loans decreased by $23.5 million, or 0.7%, to $3.27 billion, compared to December 31, 2017.  The net decrease in our loans was comprised primarily of decreases of $19.2 million of commercial real estate loans, $17.8 million of loans to individuals, and $14.0 million of 1-4 family residential loans, partially offset by increases of $16.3 million of commercial loans and $11.4 million of construction loans.  Energy loans totaled 1.55% of the loan portfolio at June 30, 2018, compared to 1.50% at December 31, 2017.

Nonperforming assets increased during the six months ended June 30, 2018 by $32.0 million, or 305.1%, to $42.4 million, or 0.68% of total assets, compared to $10.5 million, or 0.16% of total assets at December 31, 2017, primarily due to the addition of two commercial real estate relationships consisting of three loans to nonaccrual status during the first quarter.

During the six months ended June 30, 2018, the allowance for loan losses increased by $4.3 million, or 20.6%, to $25.1 million, or 0.77% of total loans, compared to 0.63% of total loans at December 31, 2017.  The increase in the allowance was primarily the result of additional provision recorded on the commercial real estate loans placed on nonaccrual status in the first quarter.

During the six months ended June 30, 2018, deposits, net of brokered deposits, decreased $58.3 million, or 1.3%, compared to December 31, 2017, due primarily to the decrease in public fund deposits of $42.8 million during the six months ended June 30, 2018, compared to December 31, 2017.

Net Interest Income for the Three Months Ended June 30, 2018

Net interest income increased $7.7 million, or 21.7%, to $43.1 million for the three months ended June 30, 2018, compared to $35.4 million for the same period in 2017.  The increase in net interest income was the result of a $10.8 million increase in interest income from our loan portfolio, partially offset by an increase in interest expense of $3.1 million associated with interest expense on our deposits, compared to the same period in 2017.

For the three months ended June 30, 2018, our net interest margin (FTE) increased to 3.19%, compared to 3.07% for the same period in 2017.  The increase in net interest margin (FTE) was due primarily to an increase in the average balances and mix of earning assets as a direct result of the acquisition of Diboll and an increase in the average yields on earning assets, partially offset by higher average rates paid on interest bearing liabilities.  The increase in average rates paid on interest bearing liabilities was primarily due to rising interest rates during 2017 and 2018.  For the three months ended June 30, 2018, our net interest spread (FTE) increased slightly to 2.90%, compared to 2.89% for the same period in 2017.  The net interest spread (FTE) on a linked quarter basis decreased from 2.95% for the three months ended March 31, 2018, to 2.90% for the three months ended June 30, 2018.  The net interest margin (FTE) remained at 3.19% on a linked quarter basis.

Net Interest Income for the Six Months Ended June 30, 2018

Net interest income increased $16.5 million, or 23.4%, to $87.2 million for the six months ended June 30, 2018, compared to $70.7 million for the same period in 2017.  The increase in net interest income was the result of a $23.1 million increase in interest income primarily from our loan portfolio, partially offset by an increase in interest expense of $6.6 million associated with interest expense on our deposits, compared to the same period in 2017.

For the six months ended June 30, 2018, our net interest margin (FTE) increased to 3.19%, compared to 3.07% for the same period in 2017.  The increase in net interest margin (FTE) was due primarily to an increase in the average balances and mix of earning assets as a direct result of the acquisition of Diboll and an increase in the average yields on earning assets, partially offset by higher average rates paid on interest bearing liabilities.  The increase in average rates paid on interest bearing liabilities was primarily due to rising interest rates during 2017 and 2018.  For the six months ended June 30, 2018, our net interest spread (FTE) increased slightly to 2.92%, compared to 2.91% for the same period in 2017.

Net Income for the Three Months Ended June 30, 2018

Net income increased $5.7 million, or 39.5%, for the three months ended June 30, 2018, to $20.2 million compared to the same period in 2017.  The increase was primarily the result of a $10.8 million increase in interest income and a $1.7 million increase in noninterest income, partially offset by a $3.7 million increase in noninterest expense and a $3.1 million increase in interest expense.

Trust income, deposit services and bank owned life insurance income increased and were partially offset by an increase in net loss on sale of securities and a decrease in gain on sale of loans.  The increase in both trust income and deposit services income was largely related to the acquisition of Diboll.  The increase in our bank owned life insurance income was due to death benefits recorded for a retired covered officer.  In connection with the adoption of Accounting Standards Update 2014-09 ("ASU 2014-09") revenue recognition guidance effective January 1, 2018, debit card expense and brokerage service expense for the three months ended June 30, 2018, previously reported in ATM and debit card expense and other noninterest expense are now netted with deposit services income and brokerage services income, respectively.  Due to the guidance under the modified retrospective method, prior periods have not been adjusted and therefore, are not comparable.

Noninterest expense increased $3.7 million, or 14.6%, for the three months ended June 30, 2018, compared to the same period in 2017.  The increase in most of our noninterest expense categories is directly attributable to the integration of Diboll into our operations.

Income tax expense for the three months ended June 30, 2018 remained relatively unchanged although net income increased.  This was attributable to the reduced tax rate under the Tax Cuts and Jobs Act resulting in a lower effective tax rate of 14.3% compared to 18.8% for the same period in 2017.

Net Income for the Six Months Ended June 30, 2018

Net income increased $7.0 million, or 23.7%, for the six months ended June 30, 2018, to $36.5 million compared to the same period in 2017.  The increase was primarily the result of a $23.1 million increase in interest income, a $1.7 million increase in noninterest income and a $0.9 million decrease in income tax expense, partially offset by a $9.5 million increase in noninterest expense, a $6.6 million increase in interest expense and a $2.6 million increase in provision for loan losses.

Excluding net (loss) gain on sale of securities, noninterest income increased $3.1 million, or 16.3%, for the six months ended June 30, 2018 compared to the same period in 2017.  Deposit services and trust income increased and were partially offset by a decrease in gain on sale of loans.  The increase in both deposit services income and trust income was largely related to the acquisition of Diboll.  With the adoption of ASU 2014-09, debit card expense and brokerage service expense for the six months ended June 30, 2018, previously reported in ATM and debit card expense and other noninterest expense, are now netted with deposit services income and brokerage services income, respectively.  Due to the guidance under the modified retrospective method, prior periods have not been adjusted and therefore, are not comparable.

Noninterest expense increased $9.5 million, or 18.6%, for the six months ended June 30, 2018, to $60.9 million, compared to the same period in 2017.  The increase in most of our noninterest expense categories was directly attributable to the integration of Diboll into our operations.

The decrease in income tax expense for the six months ended June 30, 2018  was attributable to the reduced tax rate under the Tax Cuts and Jobs Act resulting in a lower effective tax rate of 13.0% compared to 17.8% for the same period in 2017.

Conference Call

Southside's management team will host a conference call to discuss its second quarter 2018 financial results on Friday, July 27, 2018 at 9:00 a.m. CDT.  The call can be accessed by dialing 844-775-2540 and by identifying the conference ID number 7518659 or by identifying "Southside Bancshares, Inc., Second Quarter 2018 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. CDT July 27, 2018 through August 7, 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) Net interest income (FTE), (ii) Net interest margin (FTE), (iii) Net interest spread (FTE), and (iv) Efficiency ratio (FTE), which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% and 35% for the three and six months ended June 30, 2018 and 2017, respectively, to increase tax-exempt interest income to a tax-equivalent basis.  Interest income earned on certain assets is completely or partially exempt from federal income tax.  As such, these tax-exempt instruments typically yield lower returns than taxable investments.

Net interest income (FTE), Net interest margin (FTE) and Net interest spread (FTE).  Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain 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 (FTE) is the ratio of net interest income (FTE) to average earning assets.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin.  Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities.  The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Efficiency ratio (FTE).  The efficiency ratio (FTE) 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 nonrecurring expense by the sum of net interest income (FTE) and noninterest income, excluding gains (losses) on sales of available for sale securities and certain nonrecurring 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.  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.

In the following table we present, for the five quarterly periods ended June 30, 2018 and for the six months ended June 30, 2018 and 2017, the reconciliation of net interest income to net interest income adjusted to a fully taxable-equivalent basis assuming a 21% marginal tax rate for the 2018 quarterly and six month periods and a 35% marginal tax rate for the 2017 quarterly and six month periods 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).

Non-GAAP Reconciliation                            
                             
    Three Months Ended   Six Months Ended
    2018   2017   2018   2017
    June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,   June 30,   June 30,
Net interest income (GAAP)   $ 43,111     $ 44,133     $ 38,306     $ 34,960     $ 35,424     $ 87,244     $ 70,704  
Tax equivalent adjustments:                            
Loans   583     582     1,125     1,103     1,050     1,165     2,085  
Investment securities (tax-exempt)   1,651     1,619     3,049     3,544     3,229     3,270     6,604  
Net interest income (FTE) (1)   45,345     46,334     42,480     39,607     39,703     91,679     79,393  
Noninterest income   11,007     9,610     9,099     9,408     9,293     20,617     18,966  
Nonrecurring income (2)   (304 )   827     483     (627 )   75     523     (47 )
Total revenue   $ 56,048     $ 56,771     $ 52,062     $ 48,388     $ 49,071     $ 112,819     $ 98,312  
                             
Noninterest expense   $ 29,274     $ 31,667     $ 29,933     $ 25,007     $ 25,537     $ 60,941     $ 51,395  
Pre-tax amortization expense   (1,328 )   (1,378 )   (726 )   (388 )   (410 )   (2,706 )   (841 )
Nonrecurring expense (3)   (1,287 )   (1,178 )   (3,479 )   (432 )   (466 )   (2,465 )   (483 )
Adjusted noninterest expense   $ 26,659     $ 29,111     $ 25,728     $ 24,187     $ 24,661     $ 55,770     $ 50,071  
                             
Efficiency ratio   49.54 %   53.35 %   53.73 %   55.30 %   55.06 %   51.46 %   55.87 %
Efficiency ratio (FTE) (1)   47.56 %   51.28 %   49.42 %   49.99 %   50.26 %   49.43 %   50.93 %
                             
Average earning assets   $ 5,700,133     $ 5,891,352     $ 5,395,212     $ 5,199,349     $ 5,192,897     $ 5,795,214     $ 5,210,871  
                             
Net interest margin   3.03 %   3.04 %   2.82 %   2.67 %   2.74 %   3.04 %   2.74 %
Net interest margin (FTE) (1)   3.19 %   3.19 %   3.12 %   3.02 %   3.07 %   3.19 %   3.07 %
                             
Net interest spread   2.75 %   2.80 %   2.60 %   2.47 %   2.56 %   2.77 %   2.58 %
Net interest spread (FTE) (1)   2.90 %   2.95 %   2.91 %   2.82 %   2.89 %   2.92 %   2.91 %

(1)   These amounts are presented on a fully taxable-equivalent basis and are non-GAAP measures.
(2)   Includes net gains and losses on sale of available for sale securities, impairment of investments, other-than-temporary impairment charges and additional bank owned life insurance income realized as a result of the death benefits for a retired covered officer.
(3)   Includes acquisition expenses and foreclosure expenses.

Management believes adjusting net interest income, net interest margin and net interest spread to a fully taxable-equivalent basis is a standard practice in the banking industry as these measures provide useful information to make peer comparisons. Tax-equivalent adjustments are reported in the respective earning asset categories as listed in the  "Average Balances with Average Yields and Rates" tables under Results of Operations.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $6.25 billion in assets as of June 30, 2018, that owns 100% of Southside Bank.  Southside Bank currently has 59 branches 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 Julie Shamburger at (903) 531-7134, or julie.shamburger@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, 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, 2017, under "Part I - Item 1. Forward Looking Information" and "Part I - 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
  2018   2017
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
ASSETS                  
Cash and due from banks $ 78,534     $ 65,480     $ 79,171     $ 57,947     $ 56,033  
Interest earning deposits 138,685     183,241     111,541     120,996     175,039  
Federal funds sold 14,850     14,090     7,980     5,570     4,760  
Securities available for sale, at estimated fair value 2,037,994     2,062,539     1,538,755     1,292,072     1,397,811  
Securities held to maturity, at carrying value 164,276     164,847     909,506     909,844     925,538  
Federal Home Loan Bank stock, at cost 42,994     42,676     55,729     61,845     61,561  
Loans held for sale 4,566     2,003     2,001     2,177     3,036  
Loans 3,270,883     3,309,627     3,294,356     2,682,766     2,610,198  
Less: Allowance for loan losses (25,072 )   (24,220 )   (20,781 )   (19,871 )   (19,241 )
Net loans 3,245,811     3,285,407     3,273,575     2,662,895     2,590,957  
Premises & equipment, net 132,578     131,625     133,640     107,099     105,938  
Goodwill 201,246     201,246     201,246     91,520     91,520  
Other intangible assets, net 20,287     21,615     22,993     3,379     3,767  
Bank owned life insurance 97,059     100,963     100,368     99,616     99,011  
Other assets 71,293     97,465     61,592     69,470     63,511  
Total assets $ 6,250,173     $ 6,373,197     $ 6,498,097     $ 5,484,430     $ 5,578,482  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Noninterest bearing deposits $ 1,038,907     $ 1,055,423     $ 1,037,401     $ 781,701     $ 757,353  
Interest bearing deposits 3,469,834     3,586,474     3,478,046     2,782,474     2,866,720  
Total deposits 4,508,741     4,641,897     4,515,447     3,564,175     3,624,073  
Other borrowings 784,754     779,990     1,026,859     1,151,639     1,186,506  
Subordinated notes, net of unamortized debt issuance costs 98,326     98,286     98,248     98,209     98,171  
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,243     60,242     60,241     60,240     60,238  
Other liabilities 46,299     46,386     43,162     54,144     62,429  
Total liabilities 5,498,363     5,626,801     5,743,957     4,928,407     5,031,417  
Shareholders' equity 751,810     746,396     754,140     556,023     547,065  
Total liabilities and shareholders' equity $ 6,250,173     $ 6,373,197     $ 6,498,097     $ 5,484,430     $ 5,578,482  


  At or For the Three Months Ended
  2018   2017
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
Income Statement:                  
Total interest income $ 56,797     $ 57,194     $ 50,104     $ 46,473     $ 46,009  
Total interest expense 13,686     13,061     11,798     11,513     10,585  
Net interest income 43,111     44,133     38,306     34,960     35,424  
Provision for loan losses 1,281     3,735     1,271     960     1,346  
Net interest income after provision for loan losses 41,830     40,398     37,035     34,000     34,078  
Noninterest income                  
Deposit services 6,261     6,179     5,940     5,476     5,255  
Net (loss) gain on sale of securities available for sale (332 )   (827 )   (249 )   627     (75 )
Gain on sale of loans 173     115     268     347     505  
Trust income 1,931     1,760     1,156     873     899  
Bank owned life insurance income 1,185     632     632     636     635  
Brokerage services 506     450     632     561     682  
Other 1,283     1,301     720     888     1,392  
Total noninterest income 11,007     9,610     9,099     9,408     9,293  
Noninterest expense                  
Salaries and employee benefits 16,633     18,559     15,316     14,472     14,984  
Occupancy expense 3,360     3,583     3,327     2,981     2,897  
Acquisition expense 1,026     832     3,474     405     473  
Advertising, travel & entertainment 775     685     601     487     548  
ATM and debit card expense 243     346     1,049     1,024     889  
Professional fees 952     1,070     859     996     1,050  
Software and data processing expense 939     1,023     882     732     688  
Telephone and communications 478     538     444     459     476  
FDIC insurance 484     497     442     441     445  
Amortization expense on intangibles 1,328     1,378     726     388     410  
Other 3,056     3,156     2,813     2,622     2,677  
Total noninterest expense 29,274     31,667     29,933     25,007     25,537  
Income before income tax expense 23,563     18,341     16,201     18,401     17,834  
Income tax expense 3,360     2,090     5,870     3,890     3,353  
Net income $ 20,203     $ 16,251     $ 10,331     $ 14,511     $ 14,481  
                   
Common share data:      
Weighted-average basic shares outstanding 35,062     35,022     31,370     29,370     29,318  
Weighted-average diluted shares outstanding 35,233     35,200     31,569     29,570     29,519  
Shares outstanding end of period 35,084     35,053     35,000     29,433     29,344  
Net income per common share                  
Basic $ 0.58     $ 0.46     $ 0.33     $ 0.49     $ 0.49  
Diluted 0.57     0.46     0.33     0.49     0.49  
Book value per common share 21.43     21.29     21.55     18.89     18.64  
Cash dividend paid per common share 0.30     0.28     0.30     0.28     0.28  
                   
Selected Performance Ratios:                  
Return on average assets 1.30 %   1.02 %   0.70 %   1.03 %   1.04 %
Return on average shareholders' equity 10.79     8.75     6.52     10.38     10.70  
Average yield on earning assets (FTE) (1) 4.15     4.09     3.99     3.90     3.88  
Average rate on interest bearing liabilities 1.25     1.14     1.08     1.08     0.99  
Net interest spread (FTE) (1) 2.90     2.95     2.91     2.82     2.89  
Net interest margin (FTE) (1) 3.19     3.19     3.12     3.02     3.07  
Average earning assets to average interest bearing liabilities 130.22     127.29     124.73     123.32     121.57  
Noninterest expense to average total assets 1.89     1.99     2.03     1.77     1.83  
Efficiency ratio (FTE) (1) 47.56     51.28     49.42     49.99     50.26  

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

  At or For the
Six Months Ended
  June 30,
  2018   2017
Income Statement:      
Total interest income $ 113,991     $ 90,897  
Total interest expense 26,747     20,193  
Net interest income 87,244     70,704  
Provision for loan losses 5,016     2,444  
Net interest income after provision for loan losses 82,228     68,260  
Noninterest income      
Deposit services 12,440     10,369  
Net (loss) gain on sale of securities available for sale (1,159 )   247  
Gain on sale of loans 288     1,206  
Trust income 3,691     1,789  
Bank owned life insurance income 1,817     1,269  
Brokerage services 956     1,229  
Other 2,584     2,857  
Total noninterest income 20,617     18,966  
Noninterest expense      
Salaries and employee benefits 35,192     30,991  
Occupancy expense 6,943     5,760  
Acquisition expense 1,858     473  
Advertising, travel & entertainment 1,460     1,131  
ATM and debit card expense 589     1,816  
Professional fees 2,022     1,989  
Software and data processing expense 1,962     1,413  
Telephone and communications 1,016     1,002  
FDIC insurance 981     886  
Amortization expense on intangibles 2,706     841  
Other 6,212     5,093  
Total noninterest expense 60,941     51,395  
Income before income tax expense 41,904     35,831  
Income tax expense 5,450     6,361  
Net income $ 36,454     $ 29,470  


Common share data:    
Weighted-average basic shares outstanding 35,042     29,303  
Weighted-average diluted shares outstanding 35,217     29,511  
Net income per common share                                       
Basic $    1.04     $ 1.01  
Diluted 1.04     1.00  
Book value per common share 21.43     18.64  
Cash dividend paid per common share 0.58     0.53  


   
Selected Performance Ratios:      
Return on average assets 1.16 %   1.06 %
Return on average shareholders' equity                                                9.77     11.13  
Average yield on earning assets (FTE) (1) 4.12     3.85  
Average yield on interest bearing liabilities 1.20     0.94  
Net interest spread (FTE) (1) 2.92     2.91  
Net interest margin (FTE) (1) 3.19     3.07  
Average earning assets to average interest bearing liabilities 128.72     120.80  
Noninterest expense to average total assets 1.94     1.85  
Efficiency ratio (FTE) (1) 49.43     50.93  

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

  Southside Bancshares, Inc.
  Selected Financial Data (unaudited)
  (dollars in thousands)
                   
  Three Months Ended
  2018   2017
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
Nonperforming assets: $ 42,423     $ 42,444     $ 10,472     $ 9,119     $ 9,165  
Nonaccrual loans (1) 35,351     34,545     2,937     3,095     3,034  
Accruing loans past due more than 90 days (1) 7     4     1          
Restructured loans (2) 5,860     5,839     5,767     5,725     5,884  
Other real estate owned 1,137     2,014     1,613     298     233  
Repossessed assets 68     42     154     1     14  
                   
Asset Quality Ratios:                  
Nonaccruing loans to total loans 1.08 %   1.04 %   0.09 %   0.12 %   0.12 %
Allowance for loan losses to nonaccruing loans 70.92     70.11     707.56     642.04     634.18  
Allowance for loan losses to nonperforming assets 59.10     57.06     198.44     217.91     209.94  
Allowance for loan losses to total loans 0.77     0.73     0.63     0.74     0.74  
Nonperforming assets to total assets 0.68     0.67     0.16     0.17     0.16  
Net charge-offs to average loans 0.05     0.04     0.05     0.05     0.09  
                   
Capital Ratios:                  
Shareholders' equity to total assets 12.03     11.71     11.61     10.14     9.81  
Average shareholders' equity to average total assets 12.06     11.69     10.75     9.91     9.72  

(1)   Excludes purchased credit impaired ("PCI") loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.
(2)   Includes $2.9 million, $2.9 million, $2.9 million, $3.0 million, and $3.0 million in PCI loans restructured as of June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

Loan Portfolio Composition

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

  Three Months Ended
  2018   2017
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
Real Estate Loans:                  
Construction $ 487,286     $ 474,791     $ 475,867     $ 420,497     $ 386,853  
1-4 Family Residential 791,359     797,088     805,341     609,159     615,405  
Commercial 1,245,936     1,285,591     1,265,159     1,073,646     1,033,629  
Commercial Loans 282,723     281,901     266,422     166,919     172,311  
Municipal Loans 345,595     342,404     345,798     322,286     305,023  
Loans to Individuals 117,984     127,852     135,769     90,259     96,977  
Total Loans $ 3,270,883     $ 3,309,627     $ 3,294,356     $ 2,682,766     $ 2,610,198  

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 and are therefore non-GAAP measures.  See "Non-GAAP Financial Measures" for more information.

  Average Balances with Average Yields and Rates
  (unaudited)
  Three Months Ended
  June 30, 2018   March 31, 2018
  Avg Balance   Interest   Avg
Yield/Rate
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS                      
Loans (1) $ 3,285,756     $ 39,865     4.87 %   $ 3,300,506     $ 39,401     4.84 %
Loans held for sale 1,794     19     4.25 %   1,543     11     2.89 %
Securities:                      
Investment securities (taxable) (2) 6,891     51     2.97 %   39,332     227     2.34 %
Investment securities (tax-exempt) (2) 802,611     8,004     4.00 %   805,091     8,000     4.03 %
Mortgage-backed and related securities (2) 1,439,810     10,210     2.84 %   1,557,140     10,894     2.84 %
Total securities 2,249,312     18,265     3.26 %   2,401,563     19,121     3.23 %
FHLB stock, at cost, and equity investments 54,729     411     3.01 %   67,000     414     2.51 %
Interest earning deposits 92,291     400     1.74 %   107,488     399     1.51 %
Federal funds sold 16,251     71     1.75 %   13,252     49     1.50 %
Total earning assets 5,700,133     59,031     4.15 %   5,891,352     59,395     4.09 %
Cash and due from banks 75,560             78,031          
Accrued interest and other assets 473,142             493,974          
Less: Allowance for loan losses (24,558 )           (21,005 )        
Total assets $ 6,224,277             $ 6,442,352          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 360,340     208     0.23 %   $ 353,770     184     0.21 %
Time deposits 1,175,230     4,303     1.47 %   1,170,024     3,895     1.35 %
Interest bearing demand deposits 1,981,427     4,070     0.82 %   2,009,154     3,372     0.68 %
Total interest bearing deposits 3,516,997     8,581     0.98 %   3,532,948     7,451     0.86 %
FHLB borrowings 692,386     3,007     1.74 %   928,677     3,632     1.59 %
Subordinated notes, net of unamortized debt issuance costs 98,306     1,407     5.74 %   98,267     1,398     5.77 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,243     658     4.38 %   60,241     569     3.83 %
Other borrowings 9,283     33     1.43 %   8,103     11     0.55 %
Total interest bearing liabilities 4,377,215     13,686     1.25 %   4,628,236     13,061     1.14 %
Noninterest bearing deposits 1,045,298             1,016,707          
Accrued expenses and other liabilities 50,843             44,015          
Total liabilities 5,473,356             5,688,958          
Shareholders' equity 750,921             753,394          
Total liabilities and shareholders' equity $ 6,224,277             $ 6,442,352          
Net interest income (FTE)     $ 45,345             $ 46,334      
Net interest margin (FTE)         3.19 %           3.19 %
Net interest spread (FTE)         2.90 %           2.95 %

(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.

Note:  As of June 30, 2018 and March 31, 2018, loans totaling $35.4 million and $34.5 million, 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, 2017   September 30, 2017
  Avg Balance   Interest   Avg
Yield/Rate
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS                      
Loans (1) $ 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) (2) 51,678     237     1.82 %   11,085     58     2.08 %
Investment securities (tax-exempt) (2) 775,681     9,197     4.70 %   758,828     9,214     4.82 %
Mortgage-backed and related securities (2) 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 equity 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, net of unamortized debt issuance costs 98,229     1,429     5.77 %   98,190     1,413     5.71 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 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)     $ 42,480             $ 39,607      
Net interest margin (FTE)         3.12 %           3.02 %
Net interest spread (FTE)         2.91 %           2.82 %

(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.

Note:  As of December 31, 2017 and September 30, 2017, loans totaling $2.9 million and $3.1 million, 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
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS          
Loans (1) $ 2,557,093     $ 29,080     4.56 %
Loans held for sale 5,914     60     4.07 %
Securities:          
Investment securities (taxable) (2) 58,168     267     1.84 %
Investment securities (tax-exempt) (2) 749,259     9,386     5.02 %
Mortgage-backed and related securities (2) 1,594,269     10,818     2.72 %
Total securities 2,401,696     20,471     3.42 %
FHLB stock, at cost, and equity investments 66,744     299     1.80 %
Interest earning deposits 156,124     364     0.94 %
Federal funds sold 5,326     14     1.05 %
Total earning assets 5,192,897     50,288     3.88 %
Cash and due from banks 50,961          
Accrued interest and other assets 358,041          
Less: Allowance for loan losses (18,495 )        
Total assets $ 5,583,404          
LIABILITIES AND SHAREHOLDERS' EQUITY          
Savings deposits $ 262,009     121     0.19 %
Time deposits 1,014,101     2,723     1.08 %
Interest bearing demand deposits 1,616,036     2,294     0.57 %
Total interest bearing deposits 2,892,146     5,138     0.71 %
FHLB borrowings 1,213,016     3,551     1.17 %
Subordinated notes, net of unamortized debt issuance costs 98,151     1,398     5.71 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,238     494     3.29 %
Other borrowings 7,884     4     0.20 %
Total interest bearing liabilities 4,271,435     10,585     0.99 %
Noninterest bearing deposits 729,564          
Accrued expenses and other liabilities 39,819          
Total liabilities 5,040,818          
Shareholders' equity 542,586          
Total liabilities and shareholders' equity $ 5,583,404          
Net interest income (FTE)     $ 39,703      
Net interest margin (FTE)         3.07 %
Net interest spread (FTE)         2.89 %

(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.

Note:  As of June 30, 2017, loans totaling $3.0 million were on nonaccrual status.  Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

  Average Balances with Average Yields and Rates
  (unaudited)
  Six Months Ended
  June 30, 2018   June 30, 2017
  Avg Balance   Interest   Avg
Yield/Rate
  Avg Balance   Interest   Avg
Yield/Rate
ASSETS                      
Loans (1) $ 3,293,090     $ 79,266     4.85 %   $ 2,553,183     $ 57,321     4.53 %
Loans held for sale 1,669     30     3.62 %   6,466     108     3.37 %
Securities:                      
Investment securities (taxable) (2) 23,022     278     2.44 %   72,262     644     1.80 %
Investment securities (tax-exempt) (2) 803,844     16,004     4.01 %   764,431     19,315     5.10 %
Mortgage-backed and related securities (2) 1,498,151     21,104     2.84 %   1,582,455     20,863     2.66 %
Total securities 2,325,017     37,386     3.24 %   2,419,148     40,822     3.40 %
FHLB stock, at cost, and equity investments 60,831     825     2.73 %   66,646     597     1.81 %
Interest earning deposits 99,848     799     1.61 %   159,162     710     0.90 %
Federal funds sold 14,759     120     1.64 %   6,266     28     0.90 %
Total earning assets 5,795,214     118,426     4.12 %   5,210,871     99,586     3.85 %
Cash and due from banks 76,789             52,237          
Accrued interest and other assets 483,086             354,283          
Less: Allowance for loan losses (22,791 )           (18,313 )        
Total assets $ 6,332,298             $ 5,599,078          
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Savings deposits $ 357,073     392     0.22 %   $ 257,402     213     0.17 %
Time deposits 1,172,658     8,198     1.41 %   971,095     4,950     1.03 %
Interest bearing demand deposits 1,995,214     7,442     0.75 %   1,661,762     4,256     0.52 %
Total interest bearing deposits 3,524,945     16,032     0.92 %   2,890,259     9,419     0.66 %
FHLB borrowings 809,879     6,639     1.65 %   1,257,429     7,015     1.13 %
Subordinated notes, net of unamortized debt issuance costs 98,287     2,805     5.76 %   98,134     2,791     5.74 %
Trust preferred subordinated debentures, net of unamortized debt issuance costs 60,242     1,227     4.11 %   60,237     961     3.22 %
Other borrowings 8,696     44     1.02 %   7,437     7     0.19 %
Total interest bearing liabilities 4,502,049     26,747     1.20 %   4,313,496     20,193     0.94 %
Noninterest bearing deposits 1,031,065             711,745          
Accrued expenses and other liabilities 47,034             39,768          
Total liabilities 5,580,148             5,065,009          
Shareholders' equity 752,150             534,069          
Total liabilities and shareholders' equity $ 6,332,298             $ 5,599,078          
Net interest income (FTE)     $ 91,679             $ 79,393      
Net interest margin (FTE)         3.19 %           3.07 %
Net interest spread (FTE)         2.92 %           2.91 %

(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.

Note:  As of June 30, 2018 and 2017, loans totaling $35.4 million and $3.0 million, 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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