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Southside Bancshares, Inc. Announces Net Income for the Three and Nine Months Ended September 30, 2011

(October 27, 2011)

TYLER, Texas, Oct. 27, 2011 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (Nasdaq:SBSI) today reported its financial results for the three and nine months ended September 30, 2011.



Southside reported net income of $11.5 million for the three months ended September 30, 2011, an increase of $469,000, or 4.2%, when compared to the same period in 2010. The gain on sale of available for sale securities decreased to $3.9 million for the three months ended September 30, 2011 from $8.0 million for the same period in 2010, a decrease of $4.1 million, or $2.7 million, net of income tax expense. Net income for the nine months ended September 30, 2011 decreased $2.1 million, or 6.5%, to $29.9 million when compared to $31.9 million for the same period in 2010. The gain on sale of available for sale securities decreased $13.4 million, or $8.7 million, net of income tax expense, to $9.7 million for the nine months ended September 30, 2011 when compared to $23.0 million for the same period in 2010.



Diluted earnings per common share increased $0.03 or 4.5%, to $0.70 for the three months ended September 30, 2011 when compared to $0.67 for the same period in 2010. For the nine months ended September 30, 2011, diluted earnings per common share decreased $0.11, or 5.7%, to $1.82 when compared to $1.93 for the same period in 2010.


The return on average shareholders' equity for the nine months ended September 30, 2011, was 17.22%, representing a decrease when compared to 19.84% for the same period in 2010. The annual return on average assets decreased to 1.30% for the nine months ended September 30, 2011 from 1.44% for the same period in 2010.




"Southside is pleased to report on the progress made in the third quarter of 2011," stated B. G. Hartley, Chairman and Chief Executive Officer of Southside Bancshares, Inc. "We are gratified that our business plan has produced solid results in this uncertain environment. Our actively managed investment portfolio combined with our traditional approach to community banking has once again produced solid results in an environment marked by volatility as well as uncertainty."



"The reported earnings were driven by a 12.8% increase in net interest income, offset by a decrease in gain on sale of securities. We have deliberately increased the size of the investment portfolio, which was the major driver to the increase in income. Given the Federal Reserve announcement that short term rates will likely remain at these historic low levels until mid 2013, as well as the longer term borrowings already in place, we determined that strategically growing assets during the third quarter was the most prudent course of action."



"Our credit trends remain favorable, with a decrease in nonperforming assets as well as charge offs and provision expense. Although we remain cautious on the economy, we are committed to effectively servicing our communities. We are beginning to see signs of potential loan growth. As economic confidence returns, we anticipate meaningful loan growth. It is likely that with economic growth, our loan portfolio will further drive earnings growth as the investment portfolio becomes a smaller percentage of our assets."



"During the third quarter of 2011, we completed the purchase of the remaining 50% interest in Southside Financial Group, LLC, ("SFG") giving Southside 100% ownership of this entity as of July 15, 2011. This was a direct result of new regulations adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank"). Dodd Frank changed the manner in which we can do business through a non-bank entity. Given the importance of our SFG operations, we determined that purchasing the remaining 50% interest in this company and integrating its operations into Southside Bank would be in the bank's best interest. SFG was already fully consolidated on our balance sheet and this purchase will not limit or change our ability to allocate capital in order to grow our franchise."



"Our investment income was favorably impacted from a benign prepayment environment during the third quarter. Given the overall interest rate environment, we would traditionally expect portfolio income to more rapidly gravitate lower as individuals refinance mortgages. However, the inability of individuals to qualify for refinancing as well as the economics of mortgage lending and securitization has thus far prevented this rapid gravitation from occurring. As the economics of our assets change, we will adjust asset sectors and resources as much as possible in order to maintain a balance sheet appropriate for the economic environment."



"Just like the asset side of the balance sheet, we manage our funding in order to maximize long term net interest income. We continue to exercise our call options on our brokered CDs in order to lock in lower cost longer term funding. In addition, as higher cost FHLB advances mature, we are able to replace them with lower cost funding. Our ability to lock in funding is a critical aspect of balance sheet management. This funding has been the basis for the asset and earnings growth over the past several years."



"Finally, we remain committed to managing the bank to best serve our stakeholders given the economic and regulatory environment. We remain vigilant to constantly improve our cost structure against a highly competitive landscape. Our regulatory costs have increased, however, we fully intend to work harder and smarter to avoid passing these costs to our communities or asking our shareholders to absorb the burden through reduced earnings. We remain focused on making Southside an easy place to do business. We will continue to make our franchise the first choice for the Texas markets we are proud to serve."



"The last 51 years have been an amazing journey. It is vital in times like this to reflect on how our institution and communities have successfully adapted to this competitive environment. Our nation, our communities and our bank have succeeded in both good times as well as challenging times. In hindsight, all have emerged stronger. I have no doubt that will again be the case. While we are reporting short term quarterly earnings, we are managing for longer term results. The long term success of customers, shareholders and employees is our ultimate objective. I thank you for your continued trust. It has been a truly amazing journey thus far and we look forward to the journey ahead."



Loans and Deposits



For the nine months ended September 30, 2011, total loans decreased by $37.4 million, or 3.5% when compared to December 31, 2010. During the nine months ended September 30, 2011, loans to individuals decreased $31.2 million, commercial loans decreased $8.6 million and municipal loans increased $2.5 million, partially offsetting these decreases.



Nonperforming assets decreased by $4.5 million, or 25.7%, to $13.2 million, or 0.41% of total assets, for the nine months ended September 30, 2011, when compared to December 31, 2010. This decrease is primarily a result of a decrease in nonaccrual and restructured loans.



During the nine months ended September 30, 2011, deposits, net of brokered deposits, increased $154.4 million, or 7.8%, compared to December 31, 2010. 



Net Interest Income



Net interest income increased $2.7 million, or 12.8%, to $24.0 million for the three months ended September 30, 2011, when compared to $21.3 million for the same period in 2010. For the three months ended September 30, 2011, our net interest spread increased to 3.35% from 3.02% for the same period in 2010. The net interest margin increased to 3.61% for the three months ended September 30, 2011 compared to 3.35% for the same period in 2010. The increase in our net interest margin and net interest spread for the three months ended September 30, 2011 compared to the same period in 2010 is primarily a result of a 36.2% increase in the average municipal securities which have a higher average yield. The net interest margin and net interest spread for the three months ended September 30, 2011 decreased to 3.61% and 3.35%, respectively, from 3.81% and 3.52% for the three months ended June 30, 2011. The decrease in the net interest margin and net interest spread for the three months ended September 30, 2011 compared to the three months ended June 30, 2011 is a result of an increase in the average securities portfolio of $76.3 million, which generally have lower yields and a decrease in average loans of $18.3 million, which generally have higher yields. 



Net interest income increased $7.1 million, or 11.2%, to $70.8 million for the nine months ended September 30, 2011, when compared to $63.7 million for the same period in 2010.  For the nine months ended September 30, 2011, our net interest spread increased to 3.37% from 3.06% for the same period in 2010. The net interest margin increased to 3.66% for the nine months ended September 30, 2011 compared to 3.39% for the same period in 2010. The increase in our net interest margin and spread for the nine months ended September 30, 2011 compared to the same period in 2010 is primarily a result of slower prepayments on our mortgage-backed securities during 2011. During the first six months of 2010 prepayments increased significantly due to announcements by Fannie Mae and Freddie Mac that they would repurchase delinquent loans that had not been repurchased for several months and that they would begin repurchasing these delinquent loans in a more timely manner.



Net Income for the Three Months



The increase in net income for the three months ended September 30, 2011, when compared to the same period in 2010, was a result of an increase in net interest income and a decrease in the provision for loan losses which was partially offset by a decrease in gains on the sale of available for sale securities.



Noninterest expense increased $41,000, or 0.2%, for the three months ended September 30, 2011, compared to the same period in 2010. 



Net Income for the Nine Months



The decrease in net income for the nine months ended September 30, 2011, when compared to the same period in 2010, was a result of a decrease in noninterest income that included a decrease in security gains, and an increase in noninterest expense which was partially offset by an increase in net interest income and a decrease in the provision for loan losses.



Noninterest expense increased $1.5 million, or 2.7%, for the nine months ended September 30, 2011, compared to the same period in 2010. The increase in noninterest expense was primarily a result of increases in personnel expense associated with our overall growth and expansion, occupancy expense due to added facilities, and professional fees due to legal fees and consulting fees associated with the acquisition of SFG which were partially offset by a decrease in FDIC insurance premium expense.



About Southside Bancshares, Inc.



Southside Bancshares, Inc. is a bank holding company with approximately $3.2 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.



The Southside Bancshares, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=9555



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, 2010 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

At

 

September 30,

December 31,

September 30,

 

2011

2010

2010

 

(dollars in thousands)

 

(unaudited)

 

 

 

 

Selected Financial Condition Data (at end of period):

 

 

 

 

 

 

 

Total assets

$3,210,279

$2,999,621

$3,017,527

Loans

1,040,471

1,077,920

1,037,208

Allowance for loan losses

18,189

20,711

18,731

Mortgage-backed and related securities:

 

 

 

 Available for sale, at estimated fair value

1,263,528

946,043

1,026,869

 Held to maturity, at cost

389,178

417,862

440,133

Investment securities:

 

 

 

 Available for sale, at estimated fair value

304,994

299,344

245,509

 Held to maturity, at cost

1,496

1,495

1,495

Federal Home Loan Bank stock, at cost

29,057

34,712

36,130

Deposits

2,293,760

2,134,428

2,018,973

Long-term obligations

335,769

433,790

449,810

Equity

258,143

215,436

223,518

Nonperforming assets

13,160

17,709

18,699

 Nonaccrual loans

10,634

14,524

14,631

 Accruing loans past due more than 90 days

21

7

7

 Restructured loans

1,486

2,320

2,516

 Other real estate owned

831

220

1,100

 Repossessed assets

188

638

445

 

 

 

 

Asset Quality Ratios:

 

 

 

Nonaccruing loans to total loans

1.02%

1.35%

1.41%

Allowance for loan losses to nonaccruing loans

171.05

142.60

128.02

Allowance for loan losses to nonperforming assets

138.21

116.95

100.17

Allowance for loan losses to total loans

1.75

1.92

1.81

Nonperforming assets to total assets

0.41

0.59

0.62

Net charge-offs to average loans

1.02

1.25

1.37

 

 

 

 

Capital Ratios:

 

 

 

Shareholders' equity to total assets

8.04

7.15

7.36

Average shareholders' equity to average total assets

7.53

7.24

7.25


LOAN PORTFOLIO COMPOSITION



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


































































































 

At

At

At

 

 

September 30,

December 31,

September 30,

 

 

2011

2010

2010

 

 

 

 

 

 

 

(in thousands)

 

 

(unaudited)

 

Real Estate Loans:

 

 

 Construction

$103,859

$115,094

$111,121

 

 1-4 Family Residential

228,248

219,031

216,972

 

 Other

202,595

200,723

202,497

 

Commercial Loans

140,115

148,761

156,635

 

Municipal Loans

199,122

196,594

173,314

 

Loans to Individuals

166,532

197,717

176,669

 

Total Loans

$1,040,471

$1,077,920

$1,037,208

 



































































































































































































































































































































































































































 

At or for the

 

At or for the

 

Three Months

 

Nine Months

 

Ended September 30,

 

Ended September 30,

 

2011

2010

 

2011

2010

 

(dollars in thousands)

 

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Selected Operating Data:

 

 

 

 

 

Total interest income

$32,653

$32,753

 

$98,282

$98,565

Total interest expense

8,637

11,464

 

27,440

34,830

Net interest income

24,016

21,289

 

70,842

63,735

Provision for loan losses

1,454

3,201

 

5,452

9,328

Net interest income after provision for loan losses

22,562

18,088

 

65,390

54,407

Noninterest income

 

 

 

 

 

Deposit services

4,098

4,280

 

12,005

12,744

Gain on sale of securities available for sale

3,863

8,008

 

9,672

23,024

 

 

 

 

 

 

Total other-than-temporary impairment losses



 


(39

Portion of loss recognized in other comprehensive

 

 

 

 

 

income (before taxes)



 


(36

Net impairment losses recognized in earnings



 


(75

 

 

 

 

 

 

Gain on sale of loans

402

517

 

967

1,197

Trust income

672

645

 

1,968

1,736

Bank owned life insurance income

288

297

 

835

867

Other

957

931

 

3,021

2,728

Total noninterest income

10,280

14,678

 

28,468

42,221

Noninterest expense

 

 

 

 

 

Salaries and employee benefits

11,280

10,891

 

34,593

33,048

Occupancy expense

1,866

1,720

 

5,365

5,025

Equipment expense

540

532

 

1,558

1,441

Advertising, travel & entertainment

591

616

 

1,694

1,697

ATM and debit card expense

235

223

 

716

602

Director fees

193

197

 

584

590

Supplies

186

189

 

571

665

Professional fees

571

418

 

1,583

1,363

Postage

178

195

 

543

612

Telephone and communications

285

349

 

967

1,068

FDIC Insurance

212

804

 

1,710

2,172

Other

1,559

1,521

 

4,660

4,803

Total noninterest expense

17,696

17,655

 

54,544

53,086

Income before income tax expense

15,146

15,111

 

39,314

43,542

Provision for income tax expense

3,629

3,811

 

8,086

10,296

Net income

11,517

11,300

 

31,228

33,246

 Less: Net income attributable to the noncontrolling interest


(252

 

(1,358

(1,301

Net income attributable to Southside Bancshares, Inc.

$11,517

$11,048

 

$29,870

$31,945

 

 

 

 

 

 

Common share data attributable to Southside Bancshares, Inc:

16,454

16,543

 

16,439

16,563

Weighted-average basic shares outstanding

16,461

16,553

 

16,446

16,598

Weighted-average diluted shares outstanding

 

 

 

 

 

Net income per common share

$0.70

$0.67

 

$1.82

$1.93

Basic

0.70

0.67

 

1.82

1.93

Diluted



 

15.68

13.54

Book value per common share

0.18

0.17

 

0.52

0.51


















































































































 

 

 

 

At or for the

At or for the

 

Three Months

Nine Months

 

Ended September 30,

Ended September 30,

 

2011

2010

2011

2010

 

(unaudited)

(unaudited)

 

 

 

 

 

Selected Performance Ratios:

 

 

 

 

 

Return on average assets

1.44%

 

1.48%

1.30% 

1.44%

Return on average shareholders' equity

18.25

 

19.53

 

17.22 

19.84

Average yield on interest earning assets

4.78

 

5.00

 

4.93 

5.07

Average yield on interest bearing liabilities

1.43

 

1.98

 

1.56 

2.01

Net interest spread

3.35

 

3.02

 

3.37 

3.06

Net interest margin

3.61

 

3.35

 

3.66 

3.39

Average interest earnings assets to average interest

 bearing liabilities

122.00

 

120.25

 

121.65 

119.51

Noninterest expense to average total assets

2.22

2.36

2.37

2.39

Efficiency ratio

53.37

58.44

55.91

58.73


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)

 

Nine Months Ended

 

September 30, 2011

September 30, 2010

 

AVG

 

AVG

AVG

 

AVG

 

BALANCE

INTEREST

YIELD

BALANCE

INTEREST

YIELD

ASSETS

 

 

 

 

 

 

INTEREST EARNING ASSETS:

 

 

 

 

 

 

Loans (1) (2)

$1,049,918

$53,443

6.81%

$1,022,003

$54,521

7.13%

Loans Held For Sale

3,414

100

3.92%

4,509

125

3.71%

Securities:

 

 

 

 

 

 

 Investment Securities (Taxable)(4)

6,040

49

1.08%

9,271

72

1.04%

 Investment Securities (Tax-Exempt)(3)(4)

296,752

14,198

6.4%

240,434

12,276

6.83%

 Mortgage-backed and Related Securities (4)

1,474,104

37,899

3.44%

1,443,459

37,937

3.51%

 Total Securities

1,776,896

52,146

3.92%

1,693,164

50,285

3.97%

FHLB stock and other investments, at cost

30,146

182

0.81%

38,471

200

0.7%

Interest Earning Deposits

9,164

15

0.22%

15,502

19

0.16%

Total Interest Earning Assets

2,869,538

105,886

4.93%

2,773,649

105,150

5.07%

NONINTEREST EARNING ASSETS:

 

 

 

 

 

 

Cash and Due From Banks

42,069

 

 

43,723

 

 

Bank Premises and Equipment

50,570

 

 

48,233

 

 

Other Assets

137,774

 

 

124,201

 

 

Less: Allowance for Loan Loss

(19,258

 

 

(19,079

 

 

Total Assets

$3,080,693

 

 

$2,970,727

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

INTEREST BEARING LIABILITIES:

 

 

 

 

 

 

Savings Deposits

$84,899

168

0.26%

$73,725

251

0.46%

Time Deposits

856,059

8,554

1.34%

715,716

10,462

1.95%

Interest Bearing Demand Deposits

790,608

3,244

0.55%

718,067

3,899

0.73%

Total Interest Bearing Deposits

1,731,566

11,966

0.92%

1,507,508

14,612

1.3%

Short-term Interest Bearing Liabilities

266,730

5,077

2.54%

304,811

5,633

2.47%

Long-term Interest Bearing Liabilities – FHLB Dallas

300,184

7,958

3.54%

448,156

12,133

3.62%

Long-term Debt (5)

60,311

2,439

5.41%

60,311

2,452

5.44%

Total Interest Bearing Liabilities

2,358,791

27,440

1.56%

2,320,786

34,830

2.01%

NONINTEREST BEARING LIABILITIES:

 

 

 

 

 

 

Demand Deposits

454,454

 

 

407,659

 

 

Other Liabilities

34,089

 

 

25,775

 

 

Total Liabilities

2,847,334

 

 

2,754,220

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY (6)

233,359

 

 

216,507

 

 

Total Liabilities and Shareholders' Equity

$3,080,693

 

 

$2,970,727

 

 

NET INTEREST INCOME

 

$78,446

 

 

$70,320

 

NET INTEREST MARGIN ON AVERAGE EARNING ASSETS

 

 

3.66%

 

 

3.39%

NET INTEREST SPREAD

 

 

3.37%

 

 

3.06%


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



(2)  Interest income includes taxable-equivalent adjustments of $2,913 and $2,518 for the nine months ended September 30, 2011 and September 30, 2010, respectively.



(3)  Interest income includes taxable-equivalent adjustments of $4,691 and $4,067 for the nine months ended September 30, 2011 and September 30, 2010, 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 $1,487 and $1,195 for the nine months ended September 30, 2011 and September 30, 2010, respectively.



Note: As of September 30, 2011 and 2010, loans totaling $10,634 and $14,631, 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 AND YIELDS

 

(dollars in thousands)

 

(unaudited)

 

Three Months Ended

 

September 30, 2011

September 30, 2010

 

AVG

 

AVG

AVG

 

AVG

 

BALANCE

INTEREST

YIELD

BALANCE

INTEREST

YIELD

ASSETS

 

 

 

 

 

 

INTEREST EARNING ASSETS:

 

 

 

 

 

 

Loans (1) (2)

$1,031,435

$17,162

6.6%

$1,024,157

$17,742

6.87%

Loans Held For Sale

4,019

32

3.16%

6,032

Page: 1


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