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Tyler’s Southside Bancshares announces a 1.3 percent decrease in net quarterly income from last year
 Southside Bancshares Inc. today reported its financial results for the three and six months ended June 30, 2010. Southside Bancshares, Inc. is a bank holding company with approximately $3.0 billion in assets that wholly owns Southside Bank.  Southside Bank currently has 46 banking centers in Texas and operates a network of 49 ATMs. 

Southside reported net income of $9.3 million for the three months ended June 30, 2010, a decrease of $125,000, or 1.3%, when compared to the same period in 2009. 

Net income for the six months ended June 30, 2010, decreased $2.6 million, or 11.2%, to $20.9 million from $23.5 million, for the same period in 2009.

Diluted earnings per common share decreased $0.02, or 3.3%, to $0.58 for the three months ended June 30, 2010, when compared to $0.60 for the same period in 2009.  Diluted earnings per common share decreased $0.18, or 12.0%, to $1.32 for the six months ended June 30, 2010, compared to $1.50 for the same period in 2009. 

The return on average shareholders' equity for the six months ended June 30, 2010, decreased to 20.00% compared to 27.00%, for the same period in 2009.  The annual return on average assets decreased to 1.42% for the six months ended June 30, 2010, compared to 1.74% for the same period in 2009.

"We are pleased with the earnings reported for the second quarter of 2010," stated B. G. Hartley, Chairman and Chief Executive Officer of Southside Bancshares, Inc.  "We are especially gratified to produce these earnings during a quarter that progressed as few could have predicted just three months prior to the start of the second quarter.  Although the outlook for the national credit environment became less clear, our credit costs actually decreased when compared to the first quarter of 2010.  Our agency mortgage-backed securities experienced additional prepayment volatility during the second quarter due to the Fannie Mae and Freddie Mac announcements regarding the repurchases of delinquent mortgages.  We used this period of increased prepayments as an opportunity to restructure a portion of our securities portfolio.  Finally, the economic weakness in Europe caused a flight to quality in U.S. Treasury's, further reducing interest rates, and consequently, assisted the process of restructuring our securities portfolio.  We believe we have positioned the bank to more effectively manage the current economic uncertainty."

"Our overall credit costs declined in the second quarter.  We believe this moderation is a product of our underwriting culture, early identification and working with our borrowers when possible in order to proactively deal with problems.  In addition, we continue to be fortunate that our service areas have endured less weakness than other communities across the nation."

For the three months ended June 30, 2010, total loans increased slightly by $8,000, when compared to March 31, 2010.  During the three months ended June 30, 2010, commercial loans increased $2.4 million, loans to individuals increased $496,000, and real estate loans decreased $2.8 million. 

Nonperforming assets continued to stabilize during the second quarter decreasing $3.2 million, or 13.9%, to $19.7 million, or 0.66% of total assets, for the three months ended June 30, 2010 when compared to March 31, 2010.  Future performance will be influenced by economic trends.   

During the three months ended June 30, 2010, deposits, net of brokered deposits, decreased $13.2 million, or 0.74%, compared to March 31, 2010.  When comparing June 30, 2010 to June 30, 2009, deposits, net of brokered deposits, increased $117.4 million, or 7.1%.   

Net interest income decreased $3.1 million, or 13.7%, to $19.4 million for the three months ended June 30, 2010, when compared to $22.5 million for the same period in 2009.  For the three months ended June 30, 2010, our net interest spread decreased to 2.77% from 3.33% for the same period in 2009.  The net interest margin decreased to 3.09% for the three months ended June 30, 2010 compared to 3.73% for the same period in 2009.  Compared to the previous quarter, the net interest spread and net interest margin for the three months ended June 30, 2010 decreased to 2.77% and 3.09%, respectively, from 3.42% and 3.74% for the three months ended March 31, 2010.  This is due primarily to the one time prepayment announcements by Fannie Mae and Freddie Mac which increased amortization expense for agency mortgage-backed securities.  Interest rates fell sharply in the second quarter resulting in a reduction in slope in the fixed income market.

The decrease in net income for the three months ended June 30, 2010, when compared to the same period in 2009, was a result of a decrease in net interest income that was partially offset by an increase in security gains, a decrease in noninterest expense, a decrease in the provision for loan losses, a decrease in net impairment losses on the $2.9 million amortized cost basis of trust preferred securities we owned at June 30, 2010, and a decrease in income tax expense.

Noninterest expense decreased $309,000, or 1.69%, for the three months ended June 30, 2010, compared to the same period in 2009.  The decrease in noninterest expense was primarily a result of a decrease in FDIC insurance expense and ATM and debit card expense while being partially offset by an increase in salaries and employee benefits, occupancy expense and professional fees.  FDIC insurance premiums decreased $1.2 million, or 64.2%, during the second quarter of 2010, due to a special FDIC assessment of $1.3 million during the second quarter of 2009.  ATM and debit card expense decreased $149,000, or 41.3%, when compared to the same period in 2009.  The increase in salaries and employee benefits was associated with our overall growth and expansion, an increase in retirement expense and normal salary increases for existing personnel which increased a combined $755,000, or 7.2%, when compared to the same period in 2009.  Occupancy expense increased $97,000, or 6.2%, due primarily to additional depreciation of a new core banking system implemented during the fourth quarter of 2009 and overall bank growth.  Professional fees increased $84,000, or 18.5%, due primarily to an increase in consultation fees.  Income tax expense decreased $725,000, or 22.3% for the three months ended June 30, 2010, compared to the same period in 2009.  The effective tax rate decreased to 20.6% for the three months ended June 30, 2010, compared to 24.8% for the same period in 2009.  The income tax expense and the effective tax rate decreased due to an increase in tax-exempt income.