Southside Bancshares, Inc. Announces First Quarter Earnings

NASDAQ Global Select Market Symbol - 'SBSI'

TYLER, Texas, April 17 /PRNewswire-FirstCall/ -- Southside Bancshares,
Inc. ("Southside" or the "Company") (Nasdaq: SBSI) today reported its
financial results for the three months ended March 31, 2008.
Southside reported record net income of $5.5 million for the three months
ended March 31, 2008, an increase of $ 1.8 million, or 47.4%, when compared to
$3.8 million for the same period in 2007.
Earnings per fully diluted share increased $0.12, or 44.4%, to $0.39 for
the three months ended March 31, 2008, when compared to $0.27 for the same
period in 2007.
The return on average shareholders' equity for the three months ended
March 31, 2008 increased to 16.14%, compared to 13.55%, for the same period in
2007. The annual return on average assets increased to 1.00%, for the three
months ended March 31, 2008, compared to 0.81%, for the same period in 2007.
"Southside is pleased to report record earnings in this tumultuous
environment," stated B. G. Hartley, Chairman and Chief Executive Officer.
"The first quarter results were a product of prior strategic decisions, the
legacy of choices made and alternatives avoided, executed by an established
team well versed in banking and credit cycles. Amidst all the change and
volatility in the financial services industry, Southside remains focused on
enhancing long term franchise value. Many financial institutions are
currently burdened by the lack of a disciplined approach to balance sheet
management. The result of our consistent approach to risk and reward is that
Southside enjoys the luxury of choice in an environment when some institutions
are severely constrained."
"The decision to issue long-term callable brokered CDs in prior years
allowed us to exercise our call option and replace this funding with lower
cost funding in the current environment. We expensed approximately $560,000
pretax during the first quarter associated with the exercising of our call
option. The impact of this strategy will increase Southside's net income by
approximately $2.7 million pretax on an annual basis for the next two and a
half years. Our investment in Fort Worth National Bank provides Southside the
opportunity to evaluate strategic alternatives in three new diverse, dynamic,
and growing markets. Continued integration of Fort Worth National Bank into
the Southside family should further enhance the performance of the franchise.
The formation of Southside Financial Group ("SFG") diversifies our asset base
with the potential of elevated returns. Our choice to de-lever the balance
sheet at a time of marginal economics allowed us to preserve capital not only
to re-lever at a more advantageous time, but also to pursue the strategic
initiatives discussed above."
"Not only has our prudent, time tested balance sheet discipline granted us
flexibility in the past, it also allows us to consider future opportunities in
this volatile environment. We will continue to evaluate investments in all
our service areas, including Fort Worth, Arlington and Austin, in order to
further enhance future organic growth and profitability. Southside will
continue to make investments in branding, technology, and process management
in order to increase loyalty as well as efficiency. Management and the Board
will also continue to evaluate initiatives outside our current service areas
that share many of our existing demographic characteristics but offer
potential superior returns and diversification due to current regional
economic conditions. We look forward to proactively using our strong balance
sheet to capitalize on potential synergistic opportunities in this rapidly
changing environment."
"The acceleration of volatility during the first quarter resulted in
continued investment portfolio opportunities. The divestment of available for
sale ("AFS") investment securities with potential below standard future
performance characteristics resulted in a gain on sale of $2.1 million before
tax. This economic dislocation also made other fixed income sectors very
compelling. Net of sales, the investment and mortgage-backed portfolio
increased to $1.066 billion, or 3.7%, when compared to December 31, 2007. In
addition, the AFS portfolio had an unrealized market value gain on March 31,
2008 of $14.7 million due in no small part to the emphasis on liquidity,
credit quality, and the resulting absence of non-agency mortgage backed
securities. Southside will continue to proactively evaluate the economics of
the investment portfolio, with a focus on maintaining liquidity, monitoring
credit quality, and enhancing future choice."
"As some economists and pundits proclaimed the first quarter of 2008 as
the worst economic environment since the Depression, we believe our prospects
have never been brighter. We will continue to apply the same time tested
methodology to this quickly changing environment in order to produce continued
excellent results. Managing through this challenging but exciting
environment, one thing becomes abundantly clear, Southside's most valued
assets go home for dinner every night. Our board and senior management
remains keenly focused on further strengthening our investment in the
Southside team in order to provide for future growth."
Loan and Deposit Growth
For the three months ended March 31, 2008, total loans grew by
$19.6 million, or 2.0%. We are pleased that our loan growth is well
diversified as all loan categories, except for commercial real estate loans,
increased.
Nonperforming assets increased $4.2 million, or 106.1%, for the three
months ended March 31, 2008. The ratio of non-performing assets to total
assets increased but remained relatively low at 0.36%. It is important to
note that approximately $4.4 million of the nonperforming assets represents
two loan relationships placed in nonaccrual during the quarter and one loan
relationship 90 days past due. While we believe these loans are properly
classified, based on information currently available, we do not believe there
will be any significant nonreserved losses associated with these three loan
relationships.
During the three months ended March 31, 2008, deposits not including
brokered CDs increased $6.1 million, or 0.4%. During the quarter we called
$91.1 million of brokered CDs and another $2.8 million of brokered CDs
matured. As a result of the $93.9 million decrease in brokered CDs, deposits
decreased $87.8 million, or 5.7%, to $1.4 billion at March 31, 2008 when
compared to $1.5 billion at December 31, 2007.
Net Interest Income
Net interest income increased $5.3 million, or 53.3%, to $15.4 million for
the three months ended March 31, 2008, when compared to $10.0 million for the
same period in 2007. For the three months ended March 31, 2008 when compared
to the same period in 2007, our net interest spread increased to 2.55% from
1.67% and during the same periods the net interest margin increased to 3.22%
from 2.47%. Compared to the previous quarter, the net interest margin and net
interest spread for the three months ended March 31, 2008 increased to 3.22%
and 2.55%, respectively, from 2.94% and 2.16% for the three months ended
December 31, 2007. This was due in part to an increase in the automobile
portfolios purchased during the fourth quarter of 2007, which more than offset
the increase in leverage at a lower net interest margin and spread and the
issuance of trust preferred securities in August 2007 related to our
acquisition of Fort Worth National Bank.
Net Income for the Three Months
The increase in net income for the three months ended March 31, 2008 was
primarily a result of the increase in net interest income and noninterest
income partially offset by an increase in provision for loan loss and
noninterest expense. Noninterest income, excluding gain on available for sale
securities, increased $901,000, or 15.8%, for the three months ended March 31,
2008, compared to the same periods in 2007. The increase in noninterest
income was primarily the result of increases in deposit services income, trust
income, and other income. Provision for loan losses increased $2.1 million,
or 1,813.7%, for the three months ended March 31, 2008, compared to the same
period in 2007 primarily as a result of the investment in the automobile loan
portfolios.
Noninterest expense increased $3.1 million, or 27.7%, for the three months
ended March 31, 2008, compared to the same period in 2007. Due to the
acquisition of Fort Worth National Bank during the fourth quarter of 2007 and
Southside Financial Group in the third quarter of 2007, most noninterest
expense categories experienced increases. The increase in noninterest expense
was primarily a result of the increase in salaries and employee benefits and
other expense. The increase in salaries and employee benefits for the three
months ended March 31, 2008 were $1.6 million, or 22.6%, compared to the same
period in 2007.
About Southside Bancshares, Inc.
Southside Bancshares, Inc. is a bank holding company with approximately
$2.3 billion in assets that owns 100% of Southside Bank and Fort Worth
National Bank. Southside Bank and Fort Worth National Bank currently have
44 banking centers in Texas and operate a network of 45 ATMs.
To learn more about Southside Bancshares, Inc., please visit our investor
relations website at http://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 susanh@southside.com.
Forward-Looking Statements
Certain statements of other than historical fact that are contained in
this document and in 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 costs and profitability of such expansion, trends in asset
quality and earnings from growth, and certain market risk disclosures 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, 2007 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
March 31, December 31, March 31,
2008 2007 2007
(dollars in thousands)
(unaudited)
Selected Financial Condition Data
(at end of period):

Total assets $ 2,262,871 $ 2,196,322 $ 1,820,225
Loans 980,879 961,230 766,374
Allowance for loan losses 10,611 9,753 7,261
Mortgage-backed and related securities:
Available for sale, at estimated
fair value 702,928 727,553 591,873
Held to maturity, at cost 183,555 189,965 215,854
Investment securities:
Available for sale, at estimated
fair value 179,430 109,928 91,753
Held to maturity, at cost 476 475 1,352
Federal Home Loan Bank and
Federal Reserve stock, at cost 26,175 19,850 20,452
Deposits 1,442,669 1,530,491 1,309,364
Long-term obligations 315,873 146,558 129,488
Shareholders' equity 142,147 132,328 115,556
Nonperforming assets 8,133 3,946 1,716
Nonaccrual loans 6,565 2,913 1,261
Loans 90 days past due 859 400 173
Restructured loans 182 225 193
Other real estate owned 121 153 35
Repossessed assets 406 255 54

Asset Quality Ratios:
Nonaccruing loans to total loans 0.67 % 0.30 % 0.16 %
Allowance for loan losses to
nonaccruing loans 161.63 334.81 575.81
Allowance for loan losses to
nonperforming assets 130.47 247.16 423.14
Allowance for loan losses to total loans 1.08 1.01 0.95
Nonperforming assets to total assets 0.36 0.18 0.09
Net charge-offs to average loans 0.57 0.09 0.03

Capital Ratios:
Shareholders' equity to total assets 6.28 6.02 6.35
Average shareholders' equity
to average total assets 6.22 6.22 5.98

LOAN PORTFOLIO COMPOSITION

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

At At At
March 31, December 31, March 31,
2008 2007 2007
(in thousands)
(unaudited)
Real Estate Loans:
Construction $ 102,134 $ 96,356 $ 44,256
1-4 Family Residential 240,876 237,888 225,843
Other 205,513 211,280 180,321
Commercial Loans 155,557 154,171 120,420
Municipal Loans 119,015 112,523 107,080
Loans to Individuals 157,784 149,012 88,454
Total Loans $ 980,879 $ 961,230 $ 766,374

At or for the
Three Months
Ended March 31,
2008 2007
(dollars in thousands)
(unaudited)

Selected Operating Data:
Total interest income $ 32,096 $ 25,197
Total interest expense 16,726 15,171
Net interest income 15,370 10,026
Provision for loan losses 2,239 117
Net interest income after 13,131 9,909
Noninterest income
Deposit services 4,417 3,928
Gain on securities available 2,092 429
Gain on sale of loans 465 345
Trust income 593 464
Bank owned life insurance 310 264
Other 825 708
Total noninterest income 8,702 6,138
Noninterest expense
Salaries and employee benefits 8,713 7,104
Occupancy expense 1,388 1,168
Equipment expense 312 228
Advertising, travel & 464 421
ATM and debit card expense 288 254
Director fees 144 127
Supplies 177 148
Professional fees 434 311
Postage 184 148
Telephone and communications 258 191
Other 1,989 1,136
Total noninterest expense 14,351 11,236
Income before income tax 7,482 4,811
Provision for income tax 1,936 1,048
Net income $ 5,546 $ 3,763

Common share data:
Weighted-average basic shares 13,805 13,631
Weighted-average diluted shares 14,159 14,095
Net income per common share
Basic $ 0.40 $ 0.28
Diluted 0.39 0.27
Book value per common share 10.29 8.47
Cash dividend declared per 0.12 0.11

Selected Performance Ratios:
Return on average assets 1.00 % 0.81 %
Return on average shareholders' 16.14 13.55
Average yield on interest 6.49 5.95
Average yield on interest 3.94 4.28
Net interest spread 2.55 1.67
Net interest margin 3.22 2.47
Average interest earnings assets to average
interest 120.43 123.13
Noninterest expense to average 2.60 2.42
Efficiency ratio 61.28 68.04

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)
Three Months Ended
March 31, 2008 March 31, 2007
AVG AVG AVG AVG
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS
INTEREST EARNING ASSETS:
Loans (1)(2) $976,099 $18,855 7.77% $765,575 $13,021 6.90%
Loans Held For Sale 2,849 31 4.38% 3,303 41 5.03%
Securities:
Investment Securities
(Taxable)(4) 61,115 680 4.48% 68,262 836 4.97%
Investment Securities
(Tax-Exempt)(3)(4) 76,952 1,290 6.74% 41,040 723 7.14%
Mortgage-backed
and Related
Securities (4) 903,436 11,973 5.33% 862,621 10,934 5.14%
Total Securities 1,041,503 13,943 5.38% 971,923 12,493 5.21%
FHLB stock and other
investments, at cost 24,985 262 4.22% 25,297 370 5.93%
Interest Earning
Deposits 1,534 15 3.93% 552 7 5.14%
Federal Funds Sold 6,984 52 2.99% 2,337 29 5.03%
Total Interest Earning
Assets 2,053,954 33,158 6.49% 1,768,987 25,961 5.95%
NONINTEREST EARNING
ASSETS:
Cash and Due From
Banks 48,081 45,106
Bank Premises and
Equipment 39,991 32,547
Other Assets 88,781 43,813
Less: Allowance
for Loan Loss (10,020) (7,236)
Total Assets $2,220,787 $1,883,217
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST BEARING
LIABILITIES:
Savings Deposits $53,927 172 1.28% $51,168 164 1.30%
Time Deposits 597,942 7,482 5.03% 532,308 6,361 4.85%
Interest Bearing
Demand Deposits 476,241 3,101 2.62% 389,542 3,040 3.16%
Total Interest
Bearing Deposits 1,128,110 10,755 3.83% 973,018 9,565 3.99%
Short-term Interest
Bearing Liabilities 360,011 3,300 3.69% 330,037 3,946 4.85%
Long-term Interest
Bearing Liabilities
- FHLB Dallas 157,085 1,586 4.06% 113,053 1,232 4.42%
Long-term Debt (5) 60,311 1,085 7.24% 20,619 428 8.30%
Total Interest Bearing
Liabilities 1,705,517 16,726 3.94% 1,436,727 15,171 4.28%
NONINTEREST BEARING
LIABILITIES:
Demand Deposits 351,686 315,381
Other Liabilities 24,728 18,460
Total Liabilities 2,081,931 1,770,568

Minority Interest
in SFG 679 -

SHAREHOLDERS' EQUITY 138,177 112,649
Total Liabilities
and Shareholders'
Equity $2,220,787 $1,883,217
NET INTEREST INCOME $16,432 $10,790
NET YIELD ON AVERAGE
EARNING ASSETS 3.22% 2.47%
NET INTEREST SPREAD 2.55% 1.67%

(1) Interest on loans includes fees on loans that are not material in
amount.
(2) Interest income includes taxable-equivalent adjustments of $590 and
$548 for the three months ended March 31, 2008 and 2007, respectively.
(3) Interest income includes taxable-equivalent adjustments of $472 and
$216 for the three months ended March 31, 2008 and 2007, 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.

Note: As of March 31, 2008 and 2007, loans totaling $6,565 and $1,261,
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.

SOURCE Southside Bancshares, Inc.

Lee Gibson, CFO of Southside Bancshares, Inc., +1-903-531-7221