Southside Bancshares, Inc. Announces Net Income for the Three Months Ended March 31, 2010 NASDAQ Global Select Market Symbol - 'SBSI'

TYLER, Texas, April 15 /PRNewswire-FirstCall/ -- Southside Bancshares, Inc. (“Southside” or the “Company”) (Nasdaq: SBSI) today reported its financial results for the three months ended March 31, 2010.

Southside reported net income of $11.6 million for the three months ended March 31, 2010, a decrease of $2.5 million, or 17.7%, when compared to the same period in 2009.  The decrease in net income is a direct result of a $3.0 million decrease in security gains, net of tax.  Net income less security gains, net of tax, actually increased $500,000, or 8.7%

Diluted earnings per common share decreased $0.16, or 17.8%, to $0.74 for the three months ended March 31, 2010, when compared to $0.90 for the same period in 2009.  

The return on average shareholders’ equity for the three months ended March 31, 2010, decreased to 22.59% compared to 33.78%, for the same period in 2009.  The annual return on average assets decreased to 1.61% for the three months ended March 31, 2010, compared to 2.14% for the same period in 2009.

“We are pleased to report solid earnings for the first quarter of 2010,” stated B. G. Hartley, Chairman and Chief Executive Officer of Southside Bancshares, Inc.  “We are using our earnings to strengthen our franchise by organically growing our capital as well as continuing to increase our shareholder cash dividend.  During the first quarter we announced a 21.4% increase in the quarterly cash dividend and in a separate announcement, a 5% stock dividend.”

“The quarter was marked by proactive management of the balance sheet with the goal of maximizing long term franchise value.  This included restructuring a portion of our investment portfolio.  In February, Fannie Mae and Freddie Mac announced a change in practice when an individual mortgage holder becomes delinquent on their obligation.  This was not a credit event, but rather a change in the cash flows of these agency mortgage-backed securities.  Consequently, we embarked on a strategy to identify mortgage-backed securities whose cash flows might become significantly more volatile as a result of this announcement, attempt to liquidate those securities, and replace them with securities whose income and cash flow characteristics were more stable going forward.  The result was a decrease in both the average coupon of the portfolio and in the average final maturity of the portfolio.  However, the increase in cash flow due to the actions associated with the agencies announcements caused amortization expense to rise.  This growth in amortization expense will not only continue but is expected to increase in the second quarter.  We continue to fund a portion of our assets through long term callable brokered CDs, giving the bank flexibility should interest rates change in the future.  Additionally, we called some higher priced brokered CDs and replaced them with lower cost, longer term callable brokered CDs.  We are well aware the decisions made today will impact future earnings, and continue to manage today with the goal of providing flexibility and earnings well into the future.”

“The national economy is emerging from the abyss of the latter half of 2008, yet this recovery is marked by pockets of uncertainty.  During the economic downturn, the government put into place several stimulus policies.  The expiration of those policies is likely to have some impact on the economy.  As the inevitable changes in Federal Reserve posture occur, they could not only impact the economy, but could also directly impact our investment portfolio market value, our asset yields as well as funding costs.  Finally, the health care legislation could impact the national economy, our service area, our customer’s business costs, the healthcare industry and our own employee benefit expense.  Given the abundance of uncertainty, we are committed to maintaining a conservative posture and we are pleased to be in the position of having choices as the economic environment develops.”

“As we enter our 50th year of operation, we are grateful for the continued support of our shareholders.  We also want to thank each of our employees, for without their loyal service we would be unable to successfully fulfill our commitment to our communities and our shareholders.  Finally, we are fortunate to operate in our Texas service area.  For many of us, our life’s work has been growing with our communities.  In the end, it all boils down to people so I would like to thank all of the stakeholders of Southside Bancshares, Inc.  It is their dedication and loyalty to this franchise that makes these financial results possible.”

Loans and Deposits

For the three months ended March 31, 2010, total loans decreased $16.1 million, or 1.6%, compared to December 31, 2009.  During the three months ended March 31, 2010, real estate loans decreased $6.0 million, commercial loans decreased $5.9 million and loans to individuals decreased $9.5 million.  Municipal loans increased $5.2 million, partially offsetting these decreases.  

Nonperforming assets appeared to continue to stabilize during the first quarter decreasing $548,000, or 2.3%, to $22.9 million, or 0.75%, of total assets, for the three months ended March 31, 2010 when compared to December 31, 2009.    

During the three months ended March 31, 2010, deposits, net of brokered deposits, increased $38.2 million, or 2.2%, compared to December 31, 2009.    

Net Interest Income

Net interest income increased $839,000, or 3.8%, to $23.1 million for the three months ended March 31, 2010, when compared to $22.2 million for the same period in 2009.  For the three months ended March 31, 2010, when compared to the same period in 2009, our net interest spread increased to 3.42% from 3.37%.  The net interest margin decreased to 3.74% for the three months ended March 31, 2010 when compared to 3.83% for the same period in 2009.  This is due to increased amortization expense and tighter spreads for agency mortgage-backed securities.  While credit spreads for agency mortgage-backed securities tightened during the first quarter ended March 31, 2010, the yield curve, the spread between short-term U.S. Treasuries and ten year U.S. Treasuries increased, therefore the slope remains steep.

Net Income for the Three Months

The decrease in net income for the three months ended March 31, 2010, when compared to the same period in 2009, was a result of a decrease in security gains, an increase in noninterest expense and an increase in the provision for loan losses which were partially offset by a decrease in other-than-temporary impairment losses on the $2.9 million of trust preferred securities we owned at March 31, 2010.

Noninterest expense increased $935,000, or 5.7%, for the three months ended March 31, 2010, compared to the same period in 2009.  The increase in noninterest expense was partially a result of increases in salaries and employee benefits, occupancy expense, FDIC insurance expense and other expense.  The increase in salaries and employee benefits was associated with our overall growth and expansion, an increase in health insurance expense, normal salary increases for existing personnel all of which are reflected in salaries and employee benefits which increased a combined $458,000, or 4.4%, when compared to the same period in 2009.  Occupancy expense increased $225,000, or 15.9%, due primarily to additional depreciation of a new core banking system implemented during the fourth quarter of 2009 and overall bank growth.  FDIC insurance premiums increased $143,000, or 26.7%, due to an increase in FDIC insurance premium rates and an increase in deposits, when compared to the same period in 2009.  Other expense increased $196,000, or 13.6%, when compared to the same period in 2009.  The increase in other expense was primarily due to increases in repossessed asset 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 46 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 [email protected].

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 of the effect of the Company’s expansion, including expectations of the potential profitability of such expansion, trends in asset quality and earnings from growth, and certain market risk disclosures, including the impact of potential interest rate increases, 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.  

LOAN PORTFOLIO COMPOSITION

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

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.

SOURCE Southside Bancshares, Inc.

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