SOUTHSIDE BANCSHARES INC - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8 K - SOUTHSIDE BANCSHARES INC	form8_k.htm

Exhibit 99.1

SOUTHSIDE BANCSHARES, INC.

ANNOUNCES NET INCOME FOR THE

THREE MONTHS AND YEAR ENDED DECEMBER 31, 2010

NASDAQ Global Select Market Symbol - "SBSI"

Tyler, Texas, (January 27, 2011) Southside Bancshares, Inc. (“Southside” or the “Company”) (NASDAQ: SBSI) today reported its financial results for the three months and year ended December 31, 2010.

Southside reported net income of $7.5 million for the three months ended December 31, 2010, a decrease of $2.8 million, or 27.3%, when compared to the same period in 2009.

Net income for the year ended December 31, 2010, decreased $4.9 million, or 11.0%, to $39.5 million from $44.4 million, for the same period in 2009.

Diluted earnings per common share decreased $0.17, or 25.8%, to $0.49 for the three months ended December 31, 2010, when compared to $0.66 for the same period in 2009. Diluted earnings per common share decreased $0.31, or 11.0%, to $2.51 for the year ended December 31, 2010, compared to $2.82 for the same period in 2009.

The return on average shareholders’ equity for the year ended December 31, 2010, decreased to 18.16% compared to 23.69%, for the same period in 2009. The annual return on average assets decreased to 1.32% for the year ended December 31, 2010, compared to 1.58% for the same period in 2009.

“We are exceptionally pleased to report another excellent year of financial results for Southside Bancshares, Inc.,” stated B. G. Hartley, Chairman and Chief Executive Officer of Southside Bancshares, Inc. “Net income for 2010 represents our second highest level of earnings in the history of Southside. The decrease in net income of $4.9 million during 2010 when compared to 2009 is due primarily to a decrease in the gain on sale of available for sale securities. Our financial performance allowed us the flexibility to increase the quarterly dividend by $0.03, or 21.4% from $0.14 to $0.17 per common share during the first quarter, pay a 5% stock dividend during the second quarter, and pay a $0.17 special cash dividend during the fourth quarter, while at the same time organically growing capital through earnings. Further, the past several years has provided investment portfolio opportunities for strategic restructuring that has resulted in significant gain on the sale of securities. We are pleased with our results, but remain focused on making decisions today that have the potential to produce positive results in the future.”

“During 2010, as part of our funding strategy we added additional long-term funding with options that Southside controls. We believe this type of funding is an important interest management tool given the uncertainty of the future direction of interest rates. We increased our deposits and our loans during 2010 while decreasing the size of our securities portfolio and wholesale funding, leading to a slight reduction in the size of our balance sheet. Part of our investment portfolio restructuring during 2010 included liquidating “non-Texas” municipal bonds during the second and third quarters and replacing them with highly rated Texas municipals. In the lending area we continue to proactively work with our borrowers and are pleased with the current direction of our non-performing assets. Finally, we were able to repurchase approximately 260,000 shares of our common stock at an average price of $18.46, increasing each shareholder’s stake in our franchise. We are delighted to be able to make these investments for the future at a time when many continue to deal with the negative ramifications of past decisions.”

“When we started Southside 50 years ago, we never dreamed we could accomplish so much for our employees, shareholders and communities. We are truly blessed to be in Texas and are indeed fortunate that the Texas economy has demonstrated relative stability throughout this recession. It is our honor to grow with the communities we serve. Many of our employees have been with us for more than a decade, devoting their professional lives to our franchise. I am confident as shareholders, you share my belief that we owe the employees of Southside our gratitude. Finally, we want to thank you, our shareholders, for your support. That support has never been taken lightly and is always highly valued. We try to earn that support every day we come to work. The last 50 years have been an amazing journey. With that in mind, we look forward with anticipation to an amazing journey in the years to come.”

Loans and Deposits

For the three months ended December 31, 2010, total loans increased by $40.7 million, or 3.9%, when compared to September 30, 2010. For the year ended December 31, 2010, total loans increased $44.3 million, or 4.3%, compared to December 31, 2009. The increase occurred primarily in three categories, municipal loans, construction loans and loans to individuals.

Nonperforming assets decreased during the fourth quarter by $990,000, or 5.3%, to $17.7 million, or 0.59% of total assets, as of December 31, 2010 when compared to September 30, 2010. This decrease is primarily a result of a decrease in other real estate owned.

During the three months ended December 31, 2010, deposits, net of brokered deposits, increased $119.1 million, or 6.4%, compared to September 30, 2010. When comparing December 31, 2010 to December 31, 2009, deposits, net of brokered deposits, increased $233.9 million, or 13.4%. The year over year increase in deposits is the result of an increase in public fund deposits combined with an overall increase in core deposits. Some of the increase in the public fund deposits is temporary and is expected to roll-off over the next twelve months.

Net Interest Income

Net interest income decreased $2.8 million, or 11.3%, to $22.3 million for the three months ended December 31, 2010, when compared to $25.2 million for the same period in 2009. For the three months ended December 31, 2010, our net interest spread decreased to 3.10% from 3.62% for the same period in 2009. The net interest margin decreased to 3.40% for the three months ended December 31, 2010 compared to 3.96% for the same period in 2009. The net interest spread and net interest margin for the three months ended December 31, 2010 increased to 3.10% and 3.40%, respectively, from 3.02% and 3.35% for the three months ended September 30, 2010. The decrease in the net interest margin and spread for the three months ended December 31, 2010, when compared to the same periods in 2009 is due primarily to an increase in prepayments which increased the amortization expense and the reinvestment of cash flows from the securities portfolio into a lower interest rate environment.

Net Income

The decrease in net income for the three months ended December 31, 2010, when compared to the same period in 2009, was a result of a decrease in noninterest income that included a decrease in security gains, a decrease in net interest income which was partially offset by a decrease in other-than-temporary impairment losses on the $2.9 million of Trust Preferred Securities we owned at December 31, 2010, a decrease in the provision for loan losses, a decrease in the provision for income tax expense and a decrease in noninterest expense.

Noninterest expense decreased $846,000, or 4.4%, for the three months ended December 31, 2010, compared to the same period in 2009. The decrease in noninterest expense was primarily a result of decreases in personnel expense, advertising, travel and entertainment expense and other expense.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $3.0 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 48 banking centers in Texas and operates a network of 50 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," "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 and earnings and certain market risk disclosures, including the impact of interest rate 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, 2009 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.

	At			At
	December 31,			December 31,
	2010			2009

	(dollars in thousands)
	(unaudited)

Selected Financial Condition Data (at end of period):

Total assets	$	2,999,621		$	3,024,288
Loans		1,077,920			1,033,576
Allowance for loan losses		20,711			19,896
Mortgage-backed and related securities:
Available for sale, at estimated fair value		946,043			1,238,182
Held to maturity, at cost		417,862			242,665
Investment securities:
Available for sale, at estimated fair value		299,344			265,060
Held to maturity, at cost		1,495			1,493
Federal Home Loan Bank stock, at cost		34,712			38,629
Deposits		2,134,428			1,870,421
Long-term obligations		433,790			592,830
Equity		215,436			202,249
Nonperforming assets		17,709			23,453
Nonaccrual loans		14,524			18,629
Accruing loans past due more than 90 days		7			323
Restructured loans		2,320			1,972
Other real estate owned		220			1,875
Repossessed assets		638			654

Asset Quality Ratios:
Nonaccruing loans to total loans		1.35	%		1.80	%
Allowance for loan losses to nonaccruing loans		142.60			106.80
Allowance for loan losses to nonperforming assets		116.95			84.83
Allowance for loan losses to total loans		1.92			1.92
Nonperforming assets to total assets		0.59			0.78
Net charge-offs to average loans		1.25			1.11

Capital Ratios:
Shareholders’ equity to total assets		7.15			6.67
Average shareholders’ equity to average total assets		7.24			6.66

LOAN PORTFOLIO COMPOSITION

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

	At		At
	December 31,		December 31,
	2010		2009
	(in thousands) (unaudited)
	(in thousands) (unaudited)
Real Estate Loans:
Construction	$	115,094	$	105,268
1-4 Family Residential		219,031		217,677
Other		200,723		212,731
Commercial Loans		148,761		159,529
Municipal Loans		196,594		150,111
Loans to Individuals		197,717		188,260
Total Loans	$	1,077,920	$	1,033,576

	At or for the					At or for the
	Three Months					Years
	Ended December 31,					Ended December 31,
	2010		2009			2010			2009
	(dollars in thousands)					(dollars in thousands)
	(unaudited)					(unaudited)

Selected Operating Data:
Total interest income	$	32,809	$	37,407		$	131,374		$	145,193
Total interest expense		10,477		12,241			45,307			52,672
Net interest income		22,332		25,166			86,067			92,521
Provision for loan losses		4,409		5,113			13,737			15,093
Net interest income after provision for loan losses		17,923		20,053			72,330			77,428
Noninterest income
Deposit services		4,075		4,634			16,819			17,629
Gain on sale of securities available for sale		2,765		7,033			25,789			33,446

Total other-than-temporary impairment losses				(103	)		(39	)		(5,730	)
Portion of loss recognized in other comprehensive
income (before taxes)		–		(467	)		(36	)		2,730
Net impairment losses recognized in earnings		–		(570	)		(75	)		(3,000	)

Gain on sale of loans		554		(34	)		1,751			1,240
Trust income		632		626			2,368			2,456
Bank owned life insurance income		288		362			1,155			1,724
Other		861		803			3,589			3,179
Total noninterest income		9,175		12,854			51,396			56,674
Noninterest expense
Salaries and employee benefits		10,909		11,342			43,957			42,505
Occupancy expense		1,755		1,688			6,780			6,372
Equipment expense		458		476			1,899			1,718
Advertising, travel & entertainment		622		795			2,319			2,344
ATM and debit card expense		223		308			825			1,296
Director fees		360		305			950			785
Supplies		237		191			902			863
Professional fees		652		561			2,015			2,218
Postage		188		245			800			872
Telephone and communications		375		371			1,443			1,424
FDIC Insurance		737		763			2,909			3,943
Other		1,712		2,029			6,515			7,290
Total noninterest expense		18,228		19,074			71,314			71,630
Income before income tax expense		8,870		13,833			52,412			62,472
Provision for income tax expense		1,670		3,588			11,966			16,609
Net income		7,200		10,245			40,446			45,863
Less: Net (income) loss attributable to the noncontrolling interest		346		132			(955	)		(1,467	)
Net income attributable to Southside Bancshares, Inc.	$	7,546	$	10,377		$	39,491		$	44,396

Common share data attributable to Southside Bancshares, Inc:
Weighted-average basic shares outstanding		15,618		15,697		15,733		15,615
Weighted-average diluted shares outstanding		15,623		15,787		15,760		15,757
Net income per common share
Basic	$	0.49	$	0.66	$	2.51	$	2.84
Diluted		0.49		0.66		2.51		2.82
Book value per common share		–		–		13.71		12.83
Cash dividend declared per common share		0.34		0.34		0.85		0.75

	At or for the				At or for the
	Three Months				Years
	Ended December 31,				Ended December 31,
	2010		2009		2010		2009
	(unaudited)				(unaudited)

Selected Performance Ratios:
Return on average assets	0.97	%	1.39	%	1.32	%	1.58	%
Return on average shareholders’ equity	13.37		19.89		18.16		23.69
Average yield on interest earning assets	4.83		5.71		5.01		5.82
Average yield on interest bearing liabilities	1.73		2.09		1.94		2.39
Net interest spread	3.10		3.62		3.07		3.43
Net interest margin	3.40		3.96		3.39		3.81
Average interest earnings assets to average interest bearing liabilities	120.82		119.08		119.85		119.37
Noninterest expense to average total assets	2.34		2.56		2.38		2.55
Efficiency ratio	57.43		54.83		58.39		55.57

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)
	Years Ended
	December 31, 2010								December 31, 2009
	AVG BALANCE			INTEREST		AVG YIELD			AVG BALANCE			INTEREST		AVG YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)	$	1,031,858		$	73,230		7.10	%	$	1,021,770		$	73,654		7.21	%
Loans Held For Sale		5,123			189		3.69	%		4,098			161		3.93	%
Securities:
Investment Securities (Taxable)(4)		9,156			91		0.99	%		42,598			1,055		2.48	%
Investment Securities (Tax-Exempt)(3)(4)		245,874			16,515		6.72	%		174,003			12,203		7.01	%
Mortgage-backed and Related Securities (4)		1,460,785			50,130		3.43	%		1,320,766			65,463		4.96	%
Total Securities		1,715,815			66,736		3.89	%		1,537,367			78,721		5.12	%
FHLB stock and other investments, at cost		37,973			259		0.68	%		40,786			235		0.58	%
Interest Earning Deposits		13,880			32		0.23	%		21,243			137		0.64	%
Federal Funds Sold		–			–		–			3,925			17		0.43	%
Total Interest Earning Assets		2,804,649			140,446		5.01	%		2,629,189			152,925		5.82	%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks		43,881								43,504
Bank Premises and Equipment		48,709								45,231
Other Assets		124,052								112,702
Less: Allowance for Loan Loss		(19,135	)							(17,622	)
Total Assets	$	3,002,156							$	2,813,004
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits	$	74,668			324		0.43	%	$	65,896			442		0.67	%
Time Deposits		741,712			13,514		1.82	%		688,854			16,360		2.37	%
Interest Bearing Demand Deposits		723,315			5,131		0.71	%		573,937			5,880		1.02	%
Total Interest Bearing Deposits		1,539,695			18,969		1.23	%		1,328,687			22,682		1.71	%
Short-term Interest Bearing Liabilities		309,649			7,563		2.44	%		209,048			4,696		2.25	%
Long-term Interest Bearing Liabilities – FHLB Dallas		430,485			15,500		3.60	%		604,425			21,885		3.62	%
Long-term Debt (5)		60,311			3,275		5.43	%		60,311			3,409		5.65	%
Total Interest Bearing Liabilities		2,340,140			45,307		1.94	%		2,202,471			52,672		2.39	%
NONINTEREST BEARING LIABILITIES:
Demand Deposits		415,162								379,991
Other Liabilities		28,132								42,318
Total Liabilities		2,783,434								2,624,780

SHAREHOLDERS’ EQUITY (6)		218,722								188,224
Total Liabilities and Shareholders’ Equity	$	3,002,156							$	2,813,004
NET INTEREST INCOME				$	95,139							$	100,253
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS							3.39	%							3.81	%
NET INTEREST SPREAD							3.07	%							3.43	%

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

(2) Interest income includes taxable-equivalent adjustments of $3,446 and $3,136 for the years ended December 31, 2010 and 2009, respectively.

(3) Interest income includes taxable-equivalent adjustments of $5,626 and $4,596 for the years ended December 31, 2010 and 2009, respectively.

(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

(5) Represents junior subordinated debentures issued by us to Southside Statutory Trust III, IV, and V in connection with the issuance by Southside Statutory Trust III of $20 million of trust preferred securities, Southside Statutory Trust IV of $22.5 million of trust preferred securities, Southside Statutory Trust V of $12.5 million of trust preferred securities and junior subordinated debentures issued by Fort Worth Bancshares, Inc. to Magnolia Trust Company I in connection with the issuance by Magnolia Trust Company I of $3.5 million of trust preferred securities.

(6) Includes average equity of noncontrolling interest of $1,248 and $815 for the years ended December 31, 2010 and 2009, respectively.

Note: As of December 31, 2010 and 2009, loans totaling $14,524 and $18,629, respectively, were on nonaccrual status. The 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
	December 31, 2010								December 31, 2009
	AVG BALANCE			INTEREST		AVG YIELD			AVG BALANCE			INTEREST		AVG YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2)	$	1,061,101		$	18,709		7.00	%	$	1,024,695		$	18,149		7.03	%
Loans Held For Sale		6,944			64		3.66	%		3,790			45		4.71	%
Securities:
Investment Securities (Taxable)(4)		8,816			19		0.86	%		13,785			45		1.30	%
Investment Securities (Tax-Exempt)(3)(4)		262,018			4,239		6.42	%		226,190			4,112		7.21	%
Mortgage-backed and Related Securities (4)		1,512,196			12,193		3.20	%		1,448,318			17,475		4.79	%
Total Securities		1,783,030			16,451		3.66	%		1,688,293			21,632		5.08	%
FHLB stock and other investments, at cost		36,496			59		0.64	%		40,623			40		0.39	%
Interest Earning Deposits		9,067			13		0.57	%		11,936			16		0.53	%
Total Interest Earning Assets		2,896,638			35,296		4.83	%		2,769,337			39,882		5.71	%
NONINTEREST EARNING ASSETS:
Cash and Due From Banks		44,349								41,882
Bank Premises and Equipment		50,123								46,535
Other Assets		124,386								121,286
Less: Allowance for Loan Loss		(19,302	)							(18,212	)
Total Assets	$	3,096,194							$	2,960,828
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST BEARING LIABILITIES:
Savings Deposits	$	77,467			73		0.37	%	$	68,230			90		0.52	%
Time Deposits		818,851			3,052		1.48	%		747,563			3,763		2.00	%
Interest Bearing Demand Deposits		738,888			1,232		0.66	%		620,645			1,297		0.83	%
Total Interest Bearing Deposits		1,635,206			4,357		1.06	%		1,436,438			5,150		1.42	%
Short-term Interest Bearing Liabilities		324,005			1,930		2.36	%		288,393			1,341		1.84	%
Long-term Interest Bearing Liabilities – FHLB Dallas		378,048			3,367		3.53	%		540,511			4,927		3.62	%
Long-term Debt (5)		60,311			823		5.41	%		60,311			823		5.41	%
Total Interest Bearing Liabilities		2,397,570			10,477		1.73	%		2,325,653			12,241		2.09	%
NONINTEREST BEARING LIABILITIES:
Demand Deposits		437,427								384,750
Other Liabilities		35,904								42,607
Total Liabilities		2,870,901								2,753,010

SHAREHOLDERS’ EQUITY (6)		225,293								207,818
Total Liabilities and Shareholders’ Equity	$	3,096,194							$	2,960,828
NET INTEREST INCOME				$	24,819							$	27,641
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS							3.40	%							3.96	%
NET INTEREST SPREAD							3.10	%							3.62	%

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

(2) Interest income includes taxable-equivalent adjustments of $928 and $831 for the three months ended December 31, 2010 and 2009, respectively.

(3) Interest income includes taxable-equivalent adjustments of $1,559 and $1,644 for the three months ended December 31, 2010 and 2009, respectively.

(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

(6) Includes average equity of noncontrolling interest of $1,404 and $879 for the three months ended December 31, 2010 and 2009, respectively.

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