2.	REVISION TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The 2010 financial statements have been revised.

During the preparation of the 2011 Form 10-K, we determined that in periods prior to December 31, 2011, we incorrectly accounted for securities acquired with a significant purchase premium that included an embedded derivative. These securities were mainly acquired in 2010 and 2011. Pursuant to GAAP, we are required to bifurcate and account for the embedded derivative separately or to account for the securities including the embedded derivative at fair value through income, if the bifurcation was impractical. We determined that valuing the embedded derivative separately was not readily identifiable and measurable and as such, cannot be bifurcated. Therefore, we determined that all securities meeting the above criteria should be reflected at fair value with the change in fair value reflected through income. We have evaluated the effects of this error and concluded that it is immaterial to any of our previously issued annual financial statements except for the quarterly financial statements for the periods ended March 31, 2011, June 30, 2011 and September 30, 2011, which will be restated. Because correcting the error related to 2010 and prior periods would have been material to the 2011 financial statements for the three month period ended March 31, 2011, we were required to revise our 2010 financial statements.

In addition to the error related to the accounting for securities with an embedded derivative mentioned above, we determined that during the first three quarters of 2011, we incorrectly priced securities acquired with a significant premium and that we did not account for the impairment of FHLB advance option fees that became impaired during the third quarter of 2011. We evaluated the effect of these three errors and concluded that the first three quarters of 2011 should be restated.

A summary of the adjustments made and their effect on the financial statements is presented below (dollars in thousands):

	As of and for the year then ended December 31, 2010
	As Originally Stated			Corrections			Revised
Consolidated Balance Sheet

Mortgage-backed and related securities:
Available for sale, at estimated fair value	$	946,043		$	(59,469	)	$	886,574
Securities carried at fair value through income		–			72,176			72,176
Held to maturity, at amortized cost		417,862			(12,495	)		405,367
Deferred tax asset		6,677			(74	)		6,603
Total assets		2,999,621			138			2,999,759

Retained earnings		64,567			(388	)		64,179
Accumulated other comprehensive income (loss)		(6,819	)		526			(6,293	)
Total shareholders' equity		214,323			138			214,461
Total equity		215,436			138			215,574
Total liabilities and equity		2,999,621			138			2,999,759

Consolidated Statement of Income

Fair value gain (loss) – securities	$	–		$	(598	)	$	(598	)
Total noninterest income		51,396			(598	)		50,798
Income before income tax expense		52,412			(598	)		51,814
Total income taxes		11,966			(210	)		11,756
Net income		40,446			(388	)		40,058
Net income attributable to Southside Bancshares, Inc.		39,491			(388	)		39,103
Earnings per common share – basic		2.39			(0.02	)		2.37
Earnings per common share – diluted		2.39			(0.02	)		2.37

	As of and for the year then ended December 31, 2010
	As Originally Stated			Corrections			Revised

Consolidated Statement of Changes in Equity

Retained earnings:
Net income attributable to Southside Bancshares, Inc.	$	39,491		$	(388	)	$	39,103
Balance, end of period		64,567			(388	)		64,179

Accumulated other comprehensive income (loss):
Net unrealized gains on available for sale securities, net of tax		9,238			526			9,764
Net change in accumulated other comprehensive income (loss)		(11,048	)		526			(10,522	)
Balance, end of period		(6,819	)		526			(6,293	)

Total shareholders' equity		214,323			138			214,461
Total equity		215,436			138			215,574

Comprehensive income:
Net income		40,446			(388	)		40,058
Net change in accumulated other comprehensive income (loss)		(11,048	)		526			(10,522	)
Comprehensive income		29,398			138			29,536
Comprehensive income attributable to Southside Bancshares, Inc.		28,443			138			28,581

Consolidated Statement of Cash Flow

Operating Activities:
Net income	$	40,446		$	(388	)	$	40,058
Deferred tax expense (benefit)		883			(210	)		673
Fair value gain (loss) – securities		–			598			598
Net cash provided by operating activities		52,586			–			52,586

Investing Activities:
Securities held to maturity:
Maturities, calls and principal repayments		75,956			(1,041	)		74,915
Securities available for sale:
Purchases		(1,431,774	)		32,689			(1,399,085	)
Maturities, calls and principal repayments		359,585			(2,421	)		357,164
Securities carried at fair value through income:
Purchases		–			(32,689	)		(32,689	)
Maturities, calls and principal repayments		–			3,462			3,462
Net cash provided by investing activities		14,719			–			14,719