Southside Bancshares (SBSI) 8-K Results of Operations and Financial Condition

Exhibit 99.1

SOUTHSIDE BANCSHARES, INC.
ANNOUNCES THIRD QUARTER EARNINGS
NASDAQ National Market Symbol — “SBSI”

Tyler, Texas (October 28, 2004) B. G. Hartley, Chairman and Chief Executive Officer of Southside Bancshares, Inc., reported financial results for the third quarter and nine months ended September 30, 2004.

“We are extremely pleased to report net income increased $1,483,000, or 53.9%, to $4,233,000 for the third quarter ended September 30, 2004 compared to $2,750,000 for the same period in 2003,” stated B. G. Hartley. Earnings per fully diluted share increased $0.11, or 44.0%, to $0.36 for the third quarter ended September 30, 2004 compared to $0.25 for the same period in 2003.

For the nine months ended September 30, 2004 net income increased $2,865,000, or 30.1%, to $12,399,000 compared to $9,534,000 during the same period in 2003. Earnings per fully diluted share increased $0.20, or 23.0%, to $1.07 for the nine months ended September 30, 2004 compared to $0.87 for the same period in 2003.

The annualized return on average shareholders’ equity for the nine months ended September 30, 2004 was 15.94% compared to 15.29% for the same period in 2003. The annualized return on average assets was 1.11% for the nine months ended September 30, 2004 compared to 0.95% for the same period in 2003.

Southside is also delighted to announce two additional exciting developments. Windol Cook, a long time community bank president in Jacksonville is joining the Southside Jacksonville team. Our combined team of Windol Cook and Bruce Mehlenbacher, should allow Southside to grow market share and penetrate the Jacksonville market area faster than originally anticipated. Southside is also pleased to announce it plans to open a full service grocery store branch in Chandler, just west of Tyler, during the fourth quarter of 2004. Chandler is a growing community where Southside has been advertising for years and already has numerous customer relationships. The addition of this branch should allow Southside to increase market share in this growing area.

The Company experienced solid loan growth during the third quarter ended September 30, 2004 as loans increased $8.3 million. Asset quality remains strong as non-performing assets have decreased slightly at September 30, 2004 when compared to December 31, 2003, and we believe that the Company’s asset quality ratios as reported in this earnings release remain sound.

We are pleased to report deposits continued to grow during the third quarter of 2004 by $4.9 million. The increase in deposits is primarily a result of the Company’s increased penetration in the markets it serves.

The increase in net income for the third quarter ended September 30, 2004 when compared to the same period in 2003, was primarily attributable to an increase in net interest income of $2.9 million, or 39.2% and a decrease in amortization expense of $1.0 million, or 99.9%. Net interest income increased as a result of increases in the Company’s net interest margin to 3.10% and net interest spread to 2.66% during the third quarter ended September 30, 2004, when compared to 2.57% and 2.11%, respectively, for the same period in 2003. These increases were primarily a result of lower interest expense on the Company’s long-term debt, overall decreased funding costs associated with the Company’s deposits and FHLB advances and an increase in the yield on the Company’s mortgage-backed securities, due to overall slower prepayments. Future changes in interest rates could impact prepayment speeds on the Company’s mortgage-backed securities, which in turn could influence the Company’s net interest margin and spread during the coming quarters. The decrease in amortization expense related to $1.0 million of origination costs the Company amortized during the third quarter ended September 30, 2003 associated with the early redemption of Debentures due June 30, 2028.

During the third quarter ended September 30, 2004 the increases to net income were partially offset by an increase in federal tax expense of $729,000, or 206.5%, an increase in salary expense of $582,000, or 10.1%, and a decrease in non-interest income of $755,000, or 12.8%. The increase in federal tax expense for 2004 was due to an increase in taxable income as a percentage of total income for the nine months ended September 30, 2004 when compared to September 30, 2003. Normal payroll increases and higher benefit costs were the primary reasons for the increase in salary expense. Noninterest income decreased primarily due to a decrease in gains on sales of securities available for sale of $324,000, or 46.4%, and a decrease in gains on sales of loans of $482,000, or 56.5%.

Increased net income for the nine months ended September 30, 2004 when compared to the same period in 2003 was primarily attributable to an increase in net interest income of $6.5 million, or 28.7%, a decrease in amortization expense of $1.1 million, or 99.6% and a decrease in the provision for loan losses of $529,000, or 50.2%. The increases to net income during the nine months ended September 30, 2004, were partially offset by a decrease in gains on sales of available for sale securities of $1.8 million, or 42.8%, an increase in federal income tax expense of $1.5 million, or 91.1%, and an increase in noninterest expense, not including amortization expense of $1.9 million, or 6.9%.

The Company expects to continue its stock repurchase plan. The Company has approximately $1.2 million remaining to repurchase stock under the current Board approved level. The Company originally committed $2.0 million to repurchase common stock during 2004, with re-evaluation on a quarterly basis. During the third quarter and the nine months, the Company purchased 5,900 and 42,600 shares of common stock at an average price of $19.31 and $18.53, respectively.

At September 30, 2004, assets totaled $1.54 billion compared to $1.42 billion at September 30, 2003, an increase of $118.1 million, or 8.3%. Loans, net of unearned discount, increased $49.1 million, or 8.7%, from $566.2 million at September 30, 2003 to $615.3 million at September 30, 2004. Investment and mortgage-backed securities increased $77.5 million, or 10.8%, from $714.4 million at September 30, 2003 to $791.8 million at September 30, 2004. Deposits increased $59.6 million, or 7.0%, from $846.3 million at September 30, 2003 to $905.9 million at September 30, 2004. FHLB advances increased $89.4 million, or 22.0%, from $406.5 million at September 30, 2003 to $495.9 million at September 30, 2004. Shareholders’ equity totaled $106.6 million, or 6.9%, of total assets at September 30, 2004 as compared to $85.1 million, or 6.0%, of total assets at September 30, 2003, an increase of $21.5 million, or 25.2%.

Southside Bancshares, Inc. is a $1.54 billion holding company that owns 100% of Southside Bank. The bank currently has twenty-six banking centers in East Texas.

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 web site. Questions or comments may be directed to Susan Hill at (903) 531-7220, or susanh@southside.com

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 Southside Bancshares, Inc., (the “Company”) a bank holding company, may be considered to be “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “believe,” “could,” “should,” “may,” “intend,” “probability,” “risk,” “target,” “objective” and similar expressions. Forward-looking statements are subject to significant risks and uncertainties and the Company’s actual results may differ materially from the results discussed in the forward-looking statements. For example, certain market risk disclosures 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. Other factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to general economic conditions, either globally, nationally or in the State of Texas, legislation or regulatory changes which adversely affect the businesses in which the Company is engaged, economic or other disruptions caused by acts of terrorism or military actions in Iraq, Afghanistan or other areas, changes in the interest rate yield curve or interest rate environment which reduce interest margins and may impact prepayments on the mortgage-backed securities portfolio, changes effecting the leverage strategy, significant increases in competition in the banking and financial services industry, changes in consumer spending, borrowing and saving habits, technological changes, the Company’s ability to increase market share and control expenses, the effect of compliance with legislation or regulatory changes, the effect of changes in accounting policies and practices and the costs and effects of unanticipated litigation.

	At			At
	September 30,			December 31,
	2004			2003
	(dollars in thousands)
	(unaudited)
Selected Financial Condition Data
(at end of period)
Total assets	$	1,541,671		$	1,454,952
Loans, net of unearned discount		615,255			589,135
Allowance for loan losses		6,816			6,414
Mortgage-backed and related securities:
Available for sale		415,933			584,581
Held to maturity		247,256			6,382
Investment securities available for sale		128,655			144,876
Marketable equity securities available for sale		24,818			23,670
Deposits		905,935			872,529
Long-term obligations		317,688			272,694
Shareholders’ equity		106,600			100,386
Nonperforming assets		2,060			2,281
Nonaccrual loans		1,185			1,547
Loans 90 days past due		252			272
Restructured loans		179			219
Other real estate owned		436			195
Repossessed assets		8			48
Assets Quality Ratios:
Nonaccruing loans to total loans		0.19	%		0.26	%
Allowance for loan losses to nonaccruing loans		575.19			414.61
Allowance for loan losses to nonperforming assets		330.87			281.19
Allowance for loan losses to total loans		1.11			1.09
Nonperforming assets to total assets		0.13			0.16
Net charge-offs to average loans		0.03			0.17
Capital Ratios:
Shareholders’ equity to total assets		6.91			6.90
Average shareholders’ equity to average total assets		6.98			6.23

LOAN PORTFOLIO COMPOSITION

The following table sets forth loan totals net of unearned discount by category for the nine months presented: (in thousands, unaudited)

	September 30,
	2004		2003
Real Estate Loans:
Construction	$	42,922	$	39,026
1-4 Family Residential		163,319		142,003
Other		136,036		134,726
Commercial Loans		82,825		76,605
Municipal Loans		103,210		80,470
Loans to Individuals		86,943		93,373
Total Loans	$	615,255	$	566,203

	At or for the						At or for the
	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(dollars in thousands)						(dollars in thousands)
	(unaudited)						(unaudited)
Selected Operating Data:
Total interest income	$	17,163		$	14,608		$	49,215		$	45,719
Total interest expense		7,015			7,319			20,106			23,097
Net interest income		10,148			7,289			29,109			22,622
Provision for loan losses		—			—			525			1,054
Net interest income after provision for loan losses		10,148			7,289			28,584			21,568
Non-interest income
Deposit services		3,476			3,441			10,424			9,512
Gain on sale of securities available for sale		375			699			2,449			4,278
Gain on sale of loans		371			853			1,258			2,314
Trust income		320			273			894			748
Bank owned life insurance		184			257			628			749
Other		436			394			1,227			1,064
Total non-interest income		5,162			5,917			16,880			18,665
Non-interest expense
Salaries and employee benefits		6,333			5,751			19,133			17,696
Net occupancy expense		1,072			995			3,099			2,945
Equipment expense		189			177			549			527
Advertising, travel & entertainment		385			343			1,308			1,281
ATM fees		112			174			479			456
Amortization expense		1			1,034			4			1,062
Director fees		145			107			438			333
Supplies		145			173			428			487
Professional fees		344			172			783			535
Postage		140			144			416			423
Other		1,129			1,033			3,294			3,314
Total non-interest expense		9,995			10,103			29,931			29,059
Income before federal tax expense		5,315			3,103			15,533			11,174
Income tax expense		1,082			353			3,134			1,640
Net income	$	4,233		$	2,750		$	12,399		$	9,534
Common Share Data:
Weighted-average basic shares outstanding		10,955			9,444			10,935			9,330
Weighted-average diluted shares outstanding		11,589			11,531			11,575			11,593
Net income per common share Basic	$	0.39		$	0.29		$	1.13		$	1.02
Diluted		0.36			0.25			1.07			0.87
Book value per common share		—			—			9.72			8.98
Cash dividend declared per common share		0.10			0.10			0.30			0.26
Selected Performance Ratios:
Return on average assets		1.10	%		0.79	%		1.11	%		0.95	%
Return on average shareholders’ equity		16.16			13.05			15.94			15.29
Average yield on interest earning assets		5.06			4.84			5.02			5.23
Average yield on interest bearing liabilities		2.40			2.73			2.37			2.97
Net interest spread		2.66			2.11			2.65			2.26
Net interest margin		3.10			2.57			3.08			2.74
Average interest earning assets to average interest bearing liabilities		122.57			120.26			122.29			119.59
Non-interest expense to average total assets		2.60			2.91			2.69			2.88
Efficiency ratio		62.45			67.09			64.35			69.93

	AVERAGE BALANCES
	Nine Months Ended September 30,
	2004			2003
	(in thousands)
	(unaudited)
ASSETS
INTEREST EARNING ASSETS:
Loans (1)	$	600,222		$	568,310
Loans Held for Sale		3,190			7,026
Securities:
Investment Securities (Taxable) (2)		44,863			30,738
Investment Securities (Tax-Exempt) (2)		75,383			83,552
Mortgage-backed Securities (2)		628,673			522,657
Marketable Equity Securities		24,010			22,677
Interest Bearing Deposits		652			572
Federal Funds Sold		8,638			8,977
Total Interest Earning Assets		1,385,631			1,244,509
NONINTEREST EARNING ASSETS:
Cash and Due From Banks		37,900			36,628
Bank Premises and Equipment		30,639			29,817
Other Assets		39,701			43,402
Less: Allowance for Loan Loss		(6,524	)		(6,562	)
TOTAL ASSETS	$	1,487,347		$	1,347,794
LIABILITIES
INTEREST BEARING LIABILITIES:
Savings Deposits	$	48,091		$	43,109
Time Deposits		319,160			334,812
Interest Bearing Demand Deposits		279,930			248,579
Short-term Interest Bearing Liabilities		175,668			149,396
Short-term Junior Subordinated Debentures (3)		—			1,978
Long-term Interest Bearing Liabilities — FHLB Dallas		289,587			229,696
Long-term Junior Subordinated Convertible Debentures (4)		—			13,074
Long-term Junior Subordinated Debentures (5)		—			20,000
Long-term Debt (6)		20,619			—
Total Interest Bearing Liabilities		1,133,055			1,040,644
NONINTEREST BEARING LIABILITIES:
Demand Deposits		240,652			202,974
Other Liabilities		9,757			20,799
Total Liabilities		1,383,464			1,264,417
SHAREHOLDERS’ EQUITY		103,883			83,377
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,487,347		$	1,347,794

(1)	Loans are shown net of unearned discount.
(2)	Presented at historical cost.
(3)	Southside Capital Trust I from September 4, 2003, when redemption was announced, to September 30, 2003.
(4)	Southside Capital Trust II
(5)	Southside Capital Trust I through September 3, 2003, the day before its redemption was announced and Southside Statutory Trust III issued September 4, 2003.
(6)	Southside Statutory Trust III

Note: As of September 30, 2004 and 2003, loans totaling $1,185 and $1,353, 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.