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Southside Bancshares, Inc. Announces Net Income for the Three and Six Months Ended June 30, 2014

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TYLER, Texas, July 24, 2014 (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, 2014.

Southside reported net income of $10.5 million for the three months ended June 30, 2014, a decrease of $611,000, or 5.5%, when compared to $11.1 million for the same period in 2013. Net income for the six months ended June 30, 2014 decreased $1.4 million, or 7.1%, to $18.7 million when compared to $20.1 million for the same period in 2013.

Diluted earnings per common share were $0.55 and $0.59 for the three months ended June 30, 2014 and 2013, respectively, a decrease of $0.04, or 6.8%. For the six months ended June 30, 2014, diluted earnings per common share decreased $0.08, or 7.5% to $0.99 when compared to $1.07 for the same period in 2013.

The return on average shareholders' equity for the six months ended June 30, 2014, was 13.80%, compared to 15.69% for the same period in 2013. The return on average assets was 1.09% for the six months ended June 30, 2014 compared to 1.24% for the same period in 2013.

"We are very pleased to report our financial results for the quarter and six months ended June 30, 2014," stated Sam Dawson, President and Chief Executive Officer of Southside Bancshares, Inc. "During the second quarter of 2014, our net interest income increased 12% as our net interest margin improved 28 basis points to 3.94% when compared to the second quarter of 2013. The increase in our net interest income was 20.3% for the first six months of 2014 compared to 2013 as our net interest margin increased 43 basis points. For the quarter and six months ended June 30, 2014, the decrease in net income of $611,000 and $1.4 million, respectively, was due to the reduction in the net gain on sale of available for sale securities of $4.5 million and $8.8 million, respectively. Continued cost containment efforts resulted in a decrease in total noninterest expense for the first half of 2014, which included approximately $680,000 of merger related expenses associated with the pending acquisition of OmniAmerican Bancorp."

"On April 29, 2014, we announced the signing of a merger agreement with OmniAmerican Bancorp, Inc. We have filed all of our applications with relevant regulatory authorities and the preliminary joint proxy statement/prospectus included in our registration statement on Form S-4 with the Securities and Exchange Commission. We anticipate closing this transaction sometime during the fourth quarter of 2014, subject to regulatory and shareholder approvals and customary closing conditions."

"Loan growth continues at a steady pace and we expect to see that pace quicken in the second half of the year. Austin and the Fort Worth/Arlington markets are providing tremendous lending opportunities and our East Texas market is showing signs of growth and increased lending opportunities as well. We look forward to strategically expanding Southside's franchise in the dynamic greater Fort Worth market area with the closing of the OmniAmerican transaction in late 2014."

Loans and Deposits

For the six months ended June 30, 2014, total loans increased by $40.0 million, or 3.0%, when compared to December 31, 2013. During the six months ended June 30, 2014, construction loans increased $39.4 million, other real estate loans increased $9.3 million, 1-4 family real estate loans increased $1.2 million, loans to individuals decreased $3.5 million, municipal loans decreased $5.7 million, and commercial loans decreased $762,000.

Nonperforming assets increased during the first six months of 2014 by $929,000, or 6.8%, to $14.5 million, or 0.42% of total assets, when compared to 0.39% at December 31, 2013.

During the six months ended June 30, 2014, deposits, net of brokered deposits, increased $108.6 million, or 4.4%, compared to December 31, 2013, due primarily to a business account that had a temporary increase of approximately $150 million, which has since been withdrawn. During this six-month period, public fund deposits decreased $70.1 million.

Net Interest Income for the Three Months

Net interest income increased $3.0 million, or 12.0%, to $27.9 million for the three months ended June 30, 2014, when compared to $24.9 million for the same period in 2013. For the three months ended June 30, 2014, our net interest spread increased to 3.79% when compared to 3.51% for the same period in 2013. The net interest margin increased to 3.94% for the three months ended June 30, 2014 compared to 3.66% for the same period in 2013. The reason for the increase in the net interest spread and margin was the increase in the yield on the interest earning assets combined with the decrease in the yield on the interest bearing liabilities compared to the same period in 2013.

Net Interest Income for the Six Months

Net interest income increased $9.4 million, or 20.3%, to $55.7 million for the six months ended June 30, 2014, when compared to $46.3 million for the same period in 2013. For the six months ended June 30, 2014, our net interest spread increased to 3.79% from 3.33% for the same period in 2013. The net interest margin increased to 3.93% for the six months ended June 30, 2014, compared to 3.50% for the same period in 2013.

Net Income for the Three Months

Net income decreased $611,000, or 5.5%, for the three months ended June 30, 2014, to $10.5 million when compared to the same period in 2013. The decrease was primarily the result of a decrease in net gain on available for sale securities of $4.5 million and an increase in provision for loan losses of $629,000, which was partially offset by a $2.9 million increase in interest income, and decreases in noninterest expense of $740,000, and provision for income tax expense of $874,000.

Noninterest expense decreased $740,000, or 3.5%, for the three months ended June 30, 2014, compared to the same period in 2013, primarily due to decreases in FHLB prepayment fees and salary and employee benefit expense which were partially offset by an increase in professional fees associated with the pending OmniAmerican merger.

Net Income for the Six Months

Net income for the six months ended June 30, 2014 decreased $1.4 million, or 7.1%, to $18.7 million, when compared to $20.1 million for the same period in 2013. This decrease was mainly due to a decrease in net gain on sale of available for sale securities of $8.8 million and a $4.3 million increase in provision for loan losses, which was mostly offset by an increase in net interest income of $9.4 million, and decreases in noninterest expense of $877,000 and provision for income tax expense of $1.6 million.

Noninterest expense decreased $877,000, or 2.1%, for the six months ended June 30, 2014, compared to the same period in 2013, primarily due to decreases in FHLB prepayment fees, salary and employee benefit expense and occupancy expense, which were partially offset by an increase in professional fees associated with the pending OmniAmerican merger.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $3.5 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 50 banking centers in Texas and operates a network of 49 ATMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/investor. 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 Susan Hill at (903) 531-7220, or susan.hill@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, a bank holding company, may be considered to be "forward-looking statements" within the meaning of and subject to the 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, estimates, intentions and 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 growth, earnings and certain market risk disclosures, including the impact of interest rate and other economic uncertainty, 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. As a result, actual income gains and losses could materially differ from those that have been estimated.

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, 2013 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.

Additional Information About the Proposed Merger and Where to Find It

This document does not constitute an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed merger between Southside and OmniAmerican, Southside has filed with the SEC a Registration Statement on Form S-4, which includes a preliminary joint proxy statement of Southside and OmniAmerican and constitutes a preliminary prospectus. After the registration statement is declared effective by the SEC, Southside and OmniAmerican will deliver a definitive joint proxy statement/prospectus to their respective shareholders. SOUTHSIDE AND OMNIAMERICAN URGE INVESTORS AND SECURITY HOLDERS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER WHEN IT BECOMES AVAILABLE, AS WELL AS ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors and security holders may obtain (when available) copies of all documents filed with the SEC regarding the merger, free of charge, at the SEC's website (www.sec.gov). You may also obtain these documents, free of charge, from (i) Southside's website (www.southside.com) under the tab "Investor Relations," and then under the tab "Documents"; (ii) Southside upon written request to Corporate Secretary, P.O. Box 8444, Tyler, Texas 75711; (iii) OmniAmerican's website (www.omniamerican.com) under the tab "Investor Relations," and then under the tab "SEC Filings"; or (iv) OmniAmerican upon written request to Keishi High at 1320 South University Drive, Suite 900, Fort Worth, Texas 76107.

Participants in the Solicitation

Southside, OmniAmerican and their respective directors and executive officers may be considered participants in the solicitation of proxies from Southside and OmniAmerican shareholders in connection with the proposed merger and related matters. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of Southside and OmniAmerican shareholders in connection with the proposed merger and a description of their direct and indirect interests, by security holdings or otherwise, will be set forth in the joint proxy statement/prospectus that filed with the SEC. You can find information about Southside's directors and executive officers in Southside's definitive proxy statement filed with the SEC on March 14, 2014 for its 2014 Annual Meeting of Shareholders, as amended. You can find information about OmniAmerican's directors and executive officers in OmniAmerican's definitive proxy statement filed with the SEC on April 16, 2014 for its 2014 Annual Meeting of Shareholders. Additional information about Southside's directors and executive officers and OmniAmerican's directors and executive officers is also be set forth in the above-referenced Registration Statement on Form S-4 filed with the SEC. Investors should read the definitive joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions. You can obtain, when available, free copies of these documents from Southside and OmniAmerican using the contact information above.

At
June 30,

2014
At
December 31,
2013
At
June 30,

2013
(dollars in thousands)
(unaudited)
Selected Financial Condition Data (at end of period):
Total assets $ 3,498,662 $ 3,445,663 $ 3,385,665
Loans 1,391,285 1,351,273 1,293,429
Allowance for loan losses 18,408 18,877 18,370
Mortgage-backed securities:
Available for sale, at estimated fair value 751,740 840,258 821,760
Held to maturity, at carrying value 260,659 275,569 240,514
Investment securities:
Available for sale, at estimated fair value 351,908 337,429 488,321
Held to maturity, at carrying value 390,221 391,552 302,994
Federal Home Loan Bank stock, at cost 25,512 34,065 27,153
Deposits 2,601,478 2,527,808 2,499,338
Long-term obligations 566,021 559,660 502,119
Shareholders' equity 283,960 259,518 236,120
Nonperforming assets 14,535 13,606 12,270
Nonaccrual loans 9,620 8,088 8,179
Accruing loans past due more than 90 days 4 3
Restructured loans 4,036 3,888 3,053
Other real estate owned 383 726 772
Repossessed assets 492 901 266
Asset Quality Ratios:
Nonaccruing loans to total loans 0.69% 0.60% 0.63%
Allowance for loan losses to nonaccruing loans 191.35 233.40 224.60
Allowance for loan losses to nonperforming assets 126.65 138.74 149.71
Allowance for loan losses to total loans 1.32 1.40 1.42
Nonperforming assets to total assets 0.42 0.39 0.36
Net charge-offs to average loans 1.07 0.82 0.75
Capital Ratios:
Shareholders' equity to total assets 8.12 7.53 6.97
Average shareholders' equity to average total assets 7.88 7.39 7.89

Loan Portfolio Composition

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

At
June 30,

2014
At
December 31,
2013
At
June 30,

2013
(in thousands)
(unaudited)
Real Estate Loans:
Construction $ 164,668 $ 125,219 $ 123,493
1-4 Family Residential 391,675 390,499 385,241
Other 271,858 262,536 232,632
Commercial Loans 156,893 157,655 153,985
Municipal Loans 239,883 245,550 224,134
Loans to Individuals 166,308 169,814 173,944
Total Loans $ 1,391,285 $ 1,351,273 $ 1,293,429
At or For the At or For the
Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
(dollars in thousands)
(unaudited)
Selected Operating Data:
Total interest income $ 32,086 $ 29,215 $ 64,325 $ 55,776
Total interest expense 4,230 4,344 8,577 9,445
Net interest income 27,856 24,871 55,748 46,331
Provision for loan losses 2,650 2,021 6,783 2,513
Net interest income after provision for loan losses 25,206 22,850 48,965 43,818
Noninterest income
Deposit services 3,794 3,904 7,432 7,657
Net gain on sale of securities available for sale 498 5,001 509 9,346
Total other-than-temporary impairment losses (52)
Portion of loss recognized in other comprehensive income (before taxes) 10
Net impairment losses recognized in earnings (42)
Gain on sale of loans 81 241 161 560
Trust income 762 733 1,542 1,453
Bank owned life insurance income 307 264 621 518
Other 1,073 953 2,056 1,844
Total noninterest income 6,515 11,096 12,321 21,336
Noninterest expense
Salaries and employee benefits 13,092 13,401 26,194 26,610
Occupancy expense 1,786 1,897 3,540 3,768
Advertising, travel & entertainment 605 656 1,148 1,297
ATM and debit card expense 302 303 619 684
Professional fees 1,304 562 2,231 1,202
Software and data processing expense 486 444 987 987
Telephone and communications 320 384 598 835
FDIC insurance 434 409 882 830
FHLB prepayment fees 988 988
Other 2,097 2,122 4,409 4,284
Total noninterest expense 20,426 21,166 40,608 41,485
Income before income tax expense 11,295 12,780 20,678 23,669
Provision for income tax expense 838 1,712 1,997 3,559
Net income $ 10,457 $ 11,068 $ 18,681 $ 20,110
Common share data:
Weighted-average basic shares outstanding 18,832 18,744 18,825 18,748
Weighted-average diluted shares outstanding 18,925 18,778 18,914 18,776
Net income per common share
Basic $ 0.55 $ 0.59 $ 0.99 $ 1.07
Diluted 0.55 0.59 0.99 1.07
Book value per common share 15.07 12.59
Cash dividend paid per common share 0.21 0.20 0.42 0.40

At or For the
Three Months Ended
June 30,
At or For the
Six Months Ended
June 30,
2014 2013 2014 2013
(unaudited) (unaudited)
Selected Performance Ratios:
Return on average assets 1.22% 1.33% 1.09% 1.24%
Return on average shareholders' equity 15.09 17.17 13.80 15.69
Average yield on interest earning assets 4.46 4.22 4.46 4.12
Average yield on interest bearing liabilities 0.67 0.71 0.67 0.79
Net interest spread 3.79 3.51 3.79 3.33
Net interest margin 3.94 3.66 3.93 3.50
Average interest earnings assets to average interest bearing liabilities 127.57 128.33 125.58 127.59
Noninterest expense to average total assets 2.37 2.54 2.36 2.55
Efficiency ratio 53.51 57.98 53.40 61.86

RESULTS OF OPERATIONS

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities.

AVERAGE BALANCES AND YIELDS
(dollars in thousands)
(unaudited)
Six Months Ended
June 30, 2014 June 30, 2013
AVG AVG AVG AVG
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2) $ 1,368,110 $ 38,677 5.70% $ 1,277,991 $ 37,950 5.99%
Loans Held For Sale 379 8 4.26% 1,786 28 3.16%
Securities:
Investment Securities (Taxable)(4) 28,856 266 1.86% 64,835 533 1.66%
Investment Securities (Tax-Exempt)(3)(4) 649,639 17,874 5.55% 603,286 15,392 5.15%
Mortgage-backed Securities (4) 1,136,608 15,239 2.70% 1,038,261 8,616 1.67%
Total Securities 1,815,103 33,379 3.71% 1,706,382 24,541 2.90%
FHLB stock and other investments, at cost 29,855 108 0.73% 27,999 99 0.71%
Interest Earning Deposits 51,947 65 0.25% 56,369 78 0.28%
Total Interest Earning Assets 3,265,394 72,237 4.46% 3,070,527 62,696 4.12%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 44,430 46,485
Bank Premises and Equipment 52,699 50,171
Other Assets 123,572 127,715
Less: Allowance for Loan Loss (18,641) (19,044)
Total Assets $ 3,467,454 $ 3,275,854
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits $ 114,052 69 0.12% $ 106,444 71 0.13%
Time Deposits 620,631 2,233 0.73% 618,157 2,280 0.74%
Interest Bearing Demand Deposits 1,239,645 1,798 0.29% 1,070,951 1,720 0.32%
Total Interest Bearing Deposits 1,974,328 4,100 0.42% 1,795,552 4,071 0.46%
Short-term Interest Bearing Liabilities 60,952 127 0.42% 152,090 1,639 2.17%
Long-term Interest Bearing Liabilities – FHLB Dallas 504,617 3,644 1.46% 398,570 3,011 1.52%
Long-term Debt (5) 60,311 706 2.36% 60,311 724 2.42%
Total Interest Bearing Liabilities 2,600,208 8,577 0.67% 2,406,523 9,445 0.79%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 566,782 559,762
Other Liabilities 27,392 51,087
Total Liabilities 3,194,382 3,017,372
SHAREHOLDERS' EQUITY 273,072 258,482
Total Liabilities and Shareholders' Equity $ 3,467,454 $ 3,275,854
NET INTEREST INCOME $ 63,660 $ 53,251
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.93% 3.50%
NET INTEREST SPREAD 3.79% 3.33%
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $2,017 and $1,923 for the six months ended June 30, 2014 and 2013, respectively.
(3) Interest income includes taxable-equivalent adjustments of $5,895 and $4,997 for the six months ended June 30, 2014 and 2013, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents the issuance of junior subordinated debentures.

Note: As of June 30, 2014 and 2013, loans on nonaccrual status totaled $9,620 and $8,179, respectively. 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 AND YIELDS
(dollars in thousands)
(unaudited)
Three Months Ended
June 30, 2014 June 30, 2013
AVG AVG AVG AVG
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2) $ 1,371,609 $ 19,302 5.64% $ 1,288,494 $ 19,322 6.01%
Loans Held For Sale 335 3 3.59% 1,311 12 3.67%
Securities:
Investment Securities (Taxable) (4) 31,250 143 1.84% 39,719 169 1.71%
Investment Securities (Tax-Exempt)(3)(4) 655,865 9,032 5.52% 692,237 8,720 5.05%
Mortgage-backed Securities (4) 1,125,085 7,557 2.69% 1,036,866 4,680 1.81%
Total Securities 1,812,200 16,732 3.70% 1,768,822 13,569 3.08%
FHLB stock and other investments, at cost 28,109 38 0.54% 29,074 34 0.47%
Interest Earning Deposits 34,693 22 0.25% 46,362 35 0.30%
Total Interest Earning Assets 3,246,946 36,097 4.46% 3,134,063 32,972 4.22%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks 42,887 44,334
Bank Premises and Equipment 53,108 50,214
Other Assets 126,015 125,881
Less: Allowance for Loan Loss (18,635) (18,095)
Total Assets $ 3,450,321 $ 3,336,397
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits $ 116,390 34 0.12% $ 108,446 35 0.13%
Time Deposits 603,903 1,070 0.71% 614,115 1,118 0.73%
Interest Bearing Demand Deposits 1,223,788 880 0.29% 1,080,605 848 0.31%
Total Interest Bearing Deposits 1,944,081 1,984 0.41% 1,803,166 2,001 0.45%
Short-term Interest Bearing Liabilities 32,777 56 0.69% 149,913 389 1.04%
Long-term Interest Bearing Liabilities – FHLB Dallas 508,128 1,836 1.45% 428,800 1,592 1.49%
Long-term Debt (5) 60,311 354 2.35% 60,311 362 2.41%
Total Interest Bearing Liabilities 2,545,297 4,230 0.67% 2,442,190 4,344 0.71%
NONINTEREST BEARING LIABILITIES:
Demand Deposits 597,852 580,572
Other Liabilities 29,241 55,120
Total Liabilities 3,172,390 3,077,882
SHAREHOLDERS' EQUITY 277,931 258,515
Total Liabilities and Shareholders' Equity $ 3,450,321 $ 3,336,397
NET INTEREST INCOME $ 31,867 $ 28,628
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS 3.94% 3.66%
NET INTEREST SPREAD 3.79% 3.51%
(1) Interest on loans includes net fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,000 and $944 for the three months ended June 30, 2014 and 2013, respectively.
(3) Interest income includes taxable-equivalent adjustments of $3,011 and $2,813 for the three months ended June 30, 2014 and 2013, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents the issuance of junior subordinated debentures.

Note: As of June 30, 2014 and 2013, loans on nonaccrual status totaled $9,620 and $8,179, respectively. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

CONTACT: Susan Hill (903)531-7220 susan.hill@southside.com

Source:Southside Bancshares, Inc.