<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------------
Commission file number 0-10849
SOUTHSIDE BANCSHARES CORP.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1262037
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3606 GRAVOIS AVENUE, ST. LOUIS, MISSOURI 63116
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 776-7000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
At NOVEMBER 12, 1997 , the number of shares outstanding of the
-------------------------
registrant's common stock was 2,825,670 .
-------------
<PAGE> 2
SOUTHSIDE BANCSHARES CORP.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for
the nine months and three months ended
September 30, 1997 and September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997
and September 30, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE> 3
<TABLE>
<CAPTION> SEPTEMBER 30, December 31,
ASSETS 1997 1996
----------------- -----------------
<S> <C> <C>
Cash and due from banks $ 16,861 $ 17,156
Federal funds sold 14,000 13,500
Investments in debt securities:
Available-for-sale, at market value 68,498 66,650
Held-to-maturity, at amortized cost
(approximate market value of $105,045
in 1997, and $121,377 in 1996) 104,042 120,644
------- -------
Total investments in debt securities 172,540 187,294
------- -------
Loans, net of unearned discount 318,883 294,463
Less allowance for possible loan losses (6,117) (5,602)
-------- --------
Loans, net 312,766 288,861
------- -------
Bank premises and equipment 10,913 10,785
Other assets 10,388 10,311
-------- --------
TOTAL ASSETS $ 537,468 $ 527,907
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 57,144 $ 58,046
Interest-bearing demand and savings 186,836 185,589
Time deposits 227,268 223,641
------- -------
Total deposits 471,248 467,276
Short-term borrowings 5,353 1,623
Debt of employee stock ownership plan - 1,779
Other liabilities 4,589 4,388
-------- --------
Total liabilities 481,190 475,066
------- -------
Commitments and contingent liabilities
Shareholders' equity:
Cumulative preferred stock, no par value, 1,000,000 shares
authorized and unissued - -
Common stock, $1 par value, 5,000,000 shares authorized,
2,859,010 shares issued and outstanding in 1997 and 1996 2,859 2,859
Surplus 5,964 5,819
Retained earnings 49,706 46,448
Unearned employee stock ownership plan shares (1,433) (1,581)
Treasury stock, 33,340 shares in 1997 and 22,340 shares in 1996 (837) (450)
Net unrealized losses on available-for-sale securities 19 (254)
-------- --------
Total shareholders' equity 56,278 52,841
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 537,468 $ 527,907
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $20,410 $20,215 $7,105 $7,085
Interest on investments in debt securities:
Taxable 7,233 6,548 2,332 2,306
Exempt from Federal income taxes 947 952 329 317
Interest on short-term investments 602 748 232 212
-------- ------- ------ ------
TOTAL INTEREST INCOME 29,192 28,463 9,998 9,920
------- ------ ----- -----
INTEREST EXPENSE:
Interest on interest-bearing demand and savings deposits 4,324 4,221 1,468 1,448
Interest on time deposits 9,024 8,671 3,083 2,915
Interest on short-term borrowings 158 79 72 28
Interest on debt of employee stock ownership plan 105 132 34 37
--------- -------- ------- -------
TOTAL INTEREST EXPENSE 13,611 13,103 4,657 4,428
------- ------- ------ ------
NET INTEREST INCOME 15,581 15,360 5,341 5,492
Provision for possible loan losses 45 45 15 15
-------- -------- ------- ------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 15,536 15,315 5,326 5,477
------- ------- ------ ------
NONINTEREST INCOME:
Trust department 749 658 244 201
Service charges on deposit accounts 988 937 338 312
Net gains (losses) on sale of other real estate
owned and other foreclosed property (26) 52 (4) 75
Other 369 288 113 82
------ ------ ------ -------
TOTAL NONINTEREST INCOME 2,080 1,935 691 670
------ ------ ------ ------
NONINTEREST EXPENSES:
Salaries and employee benefits 5,597 5,521 1,913 1,871
Net occupancy and equipment expense 1,816 1,763 624 586
Data processing 343 351 114 108
Other 3,526 3,164 1,220 1,162
------- ------ ------ ------
TOTAL NONINTEREST EXPENSES 11,282 10,799 3,871 3,727
------- ------ ----- ------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 6,334 6,451 2,146 2,420
Federal income tax expense 1,680 1,701 571 577
------- ------ ------- -------
NET INCOME $ 4,654 $ 4,750 $1,575 $ 1,843
====== ====== ====== ======
SHARE DATA:
Earnings per common share $1.70 $1.76 $0.57 $0.68
==== ==== ==== ====
Dividends paid per common share $0.51 $0.35 $0.18 $0.13
==== ==== ==== ====
Average common shares outstanding 2,739,926 2,698,864 2,742,181 2,710,294
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,654 $ 4,750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,146 1,426
Provision for possible loan losses 45 45
Other operating activities, net (255) 309
----- -------
Total adjustments 936 1,780
------ -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,590 6,530
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in Federal funds sold (500) 1,500
Proceeds from maturities of and principal payments on
debt securities 37,849 36,069
Purchases of debt securities (22,891) (51,721)
Net (increase) decrease in loans (26,276) 6,609
Recoveries of loans previously charged off 745 876
Proceeds from sales of other real estate owned and other
foreclosed property 232 617
Purchases of bank premises and equipment (963) (l,086)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,804) (7,136)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)in demand and savings deposits 345 (4,509)
Net increase in time deposits 3,627 6,010
Net increase in short-term borrowings 3,730 1,146
Payments to acquire treasury stock (387) (283)
Cash dividends paid (1,396) (956)
----- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,919 1,408
------ -----
NET DECREASE IN CASH AND CASH EQUIVALENTS (295) 802
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,156 16,930
------ ------
CASH AND CASH EQUIVALENTS, END OF QUARTER $16,861 $17,732
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $13,307 $13,105
Income taxes 2,010 1,718
====== ======
Noncash transactions:
Transfers to other real estate owned in settlement of loans $ 389 $ 381
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SOUTHSIDE BANCSHARES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. For further information, refer to
Southside Bancshares Corp.'s (the Company) Annual Report on Form 10-K for the
year ended December 31, 1996. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion is presented to provide an understanding of Southside
Bancshares Corp. and subsidiaries (the "Company" or "Registrant") consolidated
financial condition and the results of operations for the nine months ended
September 30, 1997 and 1996.
The Company's net income is derived primarily from the net interest
income of its subsidiary banks. Net interest income is the difference (or
spread) between the interest income the subsidiary banks receive from their
loan and investment portfolios and their cost of funds, consisting primarily of
the interest paid on deposits and borrowings. Net income is also affected by
the levels of provisions for possible loan losses, noninterest income, and
noninterest expense.
Statements contained in this Report and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive officer
which are not historical or current facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended). Such
statements are based on management's beliefs, and assumptions made by and
information currently available to management and are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical earnings and those currently anticipated or projected. When used in
the Company's documents or oral presentations, the words "anticipates,"
"believes," "estimates," "expects," "intends," "forecasts," "plan," "projects,"
and similar expressions are intended to identify such forward-looking
statements. There can be no assurance that such forward-looking statements will
in fact transpire. The following important factors, risks and uncertainties,
among others, could cause actual results to differ materially from such
forward-looking statements: (1) credit risk, (2) interest rate risk, (3)
competition, (4) changes in the regulatory environment and (5) changes in
general business and economic trends. The foregoing list should not be
construed as exhaustive and the Company disclaims any obligation to subsequently
update or revise any forward-looking statements after the date of this Report.
6
<PAGE> 7
Item 2. (continued)
FINANCIAL HIGHLIGHTS
COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED Twelve Months Ended Nine Months Ended
SEPTEMBER 30, 1997 December 31, 1996 September 30, 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
EARNINGS
Total interest income $ 29,192 $ 37,868 $ 28,463
Total interest expense 13,611 17,526 13,103
------- ------ ------
Net interest income 15,581 20,342 15,360
Provision for possible loan losses 45 60 45
------- ------ ------
Net interest income after provision for possible
loan losses $ 15,536 $ 20,282 $ 15,315
====== ===== ======
Net income $ 4,654 $ 6,158 $ 4,750
====== ===== ======
SHARE DATA
Net income $ 1.70 $ 2.27 $ 1.76
Dividends paid .51 .50
Book value 20.57 19.30 .35
Tangible book value 20.47 19.18 18.84
Shares outstanding (period-end) 2,825,670 2,836,670 18.71
FINANCIAL POSITION
Total assets $537,468 $ 527,907 $519,431
Total deposits 471,248 467,276 459,068
Total loans, net of unearned discount 318,883 294,463 296,389
Allowance for possible loan losses 6,117 5,602 5,730
Short-term borrowings 5,353 1,623 1,925
Debt of employee stock ownership plan - 1,779 1,779
Total shareholders' equity 56,278 52,841 51,512
SELECTED RATIOS
The table below summarizes various selected ratios as of the end of the periods indicated.
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED Twelve Months Ended Nine Months Ended
SEPTEMBER 30, 1997(1) December 31, 1996 September 30, 1996(1)
------------------ ----------------- -------------------
<S> <C> <C> <C>
Loan-to-deposit ratio 67.67% 63.02% 64.56%
Allowance for possible loan losses to total
loans 1.92 1.90 1.93
Return on average assets 1.16 1.20 1.23
Return on average shareholders' equity 11.36 12.27 12.79
Net interest margin on average interest-
earning assets 4.30 4.42 4.48
Average shareholders' equity to average total
assets 10.24 9.75 9.65
Tier I leverage capital to adjusted total
consolidated assets less intangibles 10.40 10.12 10.01
Tier I capital to risk-weighted assets 16.49 16.62 16.80
Total capital to risk-weighted assets 17.74 17.88 18.06
</TABLE>
(1) Statistical information is annualized where applicable.
7
<PAGE> 8
Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company have increased $9,561,000
during 1997 to $537,468,000 at September 30, 1997 compared to $527,907,000 at
December 31, 1996.
LOAN PORTFOLIO
The Company's loan portfolio consists of business loans to small and
medium size companies, commercial and residential real estate loans, and
consumer loans. Traditionally, the majority of the loan portfolio has focused
on real estate as an integral component of a credit's underlying source of
repayment. The following table is a breakdown of the Company's loan portfolio
as of the end of the periods indicated.
<TABLE>
<CAPTION>
(in thousands)
SEPTEMBER 30, 1997 December 31, 1996 September 30, 1996
------------------ ----------------- ------------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 68,740 $ 62,016 $ 64,470
Real estate-commercial 90,655 82,045 82,445
Real estate-construction 28,485 26,067 24,534
Real estate-residential 94,539 96,039 96,921
Consumer 25,776 17,304 16,749
Industrial revenue bonds 5,943 6,373 6,571
Other 4,745 4,619 4,699
-------- -------- --------
$318,883 $294,463 $296,389
======= ======= =======
</TABLE>
The Company's loan portfolio totaled $318,883,000 at September 30,
1997. This represents an increase of approximately $24.4 million or 8.3% since
December 31, 1996. Commercial, financial and agricultural loans accounted for
$6,724,000 of the increase and commercial real estate loans accounted for an
additional $8,610,000 of the increase. These increases were primarily the
result of an increased focus on developing new lending relationships,
especially in light of the continued stability in the economy and the
opportunities created by the recent wave of mergers and acquisitions in the
local banking market. The Company firmly believes that it can offer a
combination of products and services attractive to small-to-medium sized
businesses and serve a niche created by the consolidations in our market. The
remainder of the increase was largely due to an $8,472,000 increase in consumer
loans. During the fourth quarter of 1996, the Company began to focus on
automobile financing. Utilizing the services of a direct marketing company,
the Company's subsidiary banks identify recent purchasers of new and used
vehicles in their individual market territories and solicit refinancing of the
vehicles purchased.
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(dollars in thousands)
NINE MONTHS ENDED Twelve Months Ended Nine Months Ended
September 30, 1997 December 31, 1996 September 30, 1996
------------------- ----------------- ------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 5,602 $ 5,635 $ 5,635
Provision charged to expense 45 60 45
Loans charged off (275) (1,219) (826)
Recoveries 745 1,126 876
------ ------ -----
BALANCE AT END OF PERIOD $ 6,117 $ 5,602 $ 5,730
====== ====== =====
</TABLE>
The balance of the allowance for possible loan losses has increased by
$515,000 during the first nine months of 1997, as recoveries have exceeded
charge-offs by $470,000, and the Company has recorded a provision for possible
loan losses during the first nine months of $45,000. Based upon the Company's
internal analysis of the adequacy of the allowance for possible loan losses,
management of the Company believes the level is adequate to cover actual and
potential losses in the loan portfolio under current conditions. The ratio of
8
<PAGE> 9
Item 2. (continued)
allowance for possible loan losses as a percentage of total loans remained
relatively unchanged at 1.92% as of September 30, 1997 compared to 1.90% and
1.93% at December 31, 1996 and September 30, 1996, respectively, as the
increase in the balance of the allowance for possible loan losses was offset by
the aforementioned loan growth.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(dollars in thousands)
SEPTEMBER 30, 1997 December 31, 1996 September 30, 1996
------------------ ----------------- ------------------
<S> <C> <C> <C>
Nonaccrual loans $ 3,279 $ 1,037 $ 3,065
Loans past due 90 days or more and still
accruing interest 670 146 484
------ ------ ------
TOTAL NONPERFORMING LOANS 3,949 1,183 3,549
Other real estate owned 991 860 358
------ ------ ------
TOTAL NONPERFORMING ASSETS $ 4,940 $ 2,043 $ 3,907
====== ====== ======
RATIOS:
Total nonperforming loans as % of total loans 1.24% 0.40% 1.20%
Nonperforming assets as % of total loans and
other real estate owned 1.54 0.69 1.32
Nonperforming assets as % of total assets 0.92 0.39 0.75
</TABLE>
Nonperforming assets totaled $4,940,000 or 0.92% of total assets at
September 30, 1997 compared to $2,043,000 or 0.39% and $3,907,000 or 0.75% at
December 31, 1996 and September 30, 1996, respectively. The increase in
nonperforming loans during the third quarter was mainly the result of a $2.5
million commercial lending relationship which was placed on nonaccrual status
during the month of September. The borrower has filed for protection under
chapter 13 of the bankruptcy code and has a reorganization plan pending before
the court. The Company continues to receive payments on the debt and fully
expects the borrower to ultimately fulfill his financial obligations to the
bank. Management believes adequate reserves have been allocated to this credit
in the event of foreclosure.
Any loans classified for regulatory purposes, but not included above
in nonperforming loans, do not represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the borrower's ability to comply with the loan repayment terms or
which management reasonably expects will materially impact future operating
results or capital resources. As of September 30, 1997, there were no
concentrations of loans exceeding 10% of total loans which were not disclosed
as a category of loans detailed on page 8.
INVESTMENTS IN DEBT SECURITIES
Investments in debt securities have decreased $14,754,000 since
December 31, 1996 due, in large part, to the increase in the loan portfolio.
The investment portfolio contains a mixture of debt securities in terms of the
types of securities, interest rates, and maturity distribution. Management
believes this diversity, as well as its conservative philosophy towards risk
management, has resulted in a stable investment portfolio.
DEPOSITS
Total deposits increased $3,972,000 during the first nine months of
1997. The majority of the deposit growth was in time deposits, as the increase
in interest-bearing demand deposits and savings accounts was offset by a
decline in noninterest-bearing demand deposit accounts. The increase in time
deposits was largely due to additional public funds the subsidiary banks were
able to obtain at competitive prices.
9
<PAGE> 10
Item 2. (continued)
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to
repurchase. The $3.7 million increase was largely due to a daily "repo sweep"
account introduced by the Company during the third quarter of 1996. This cash
management product allows commercial customers to more effectively invest their
operating funds within the subsidiary banks.
ASSET/LIABILITY MANAGEMENT
As reflected on the Repricing and Interest Rate Sensitivity Analysis
below, the Company has a reasonably well-balanced interest rate sensitivity
position. The Company's current one-year cumulative gap is 1.05x. Generally,
a one-year cumulative gap ratio in a range of 0.80x - 1.20x indicates an entity
is not subject to undue interest rate risk. A one-year cumulative gap ratio of
1.00x indicates that an institution has an equal amount of assets and
liabilities repricing within twelve months. A ratio in excess of 1.00x
indicates more assets than liabilities will be repriced during the period
indicated, and a ratio less than 1.00x indicates more liabilities than assets
will be repriced during the period indicated. However, actual experience may
differ because of the assumptions used in the allocation of deposits and other
factors which are beyond management's control. Additionally, the following
analysis includes the available-for-sale securities spread throughout their
respective repricing and/or maturity horizons, even though such securities are
available for immediate liquidity should the need arise in any particular time
horizon.
<TABLE>
<CAPTION>
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)
SEPTEMBER 30, 1997
Over Over
3 months 1 year
3 months through through Over
or less 12 months 5 years 5 years Total
------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 14,000 $ - $ - $ - $ 14,000
Investments available-for-sale 13,979 10,028 36,272 8,219 68,498
Investments held-to-maturity 7,654 17,079 61,228 18,081 104,042
Loans, net of unearned discount (1) 165,296 56,813 74,290 22,484 318,883
------- ------- ------- ------- -------
Total interest-earning assets 200,929 83,920 171,790 48,784 505,423
------- ------- ------- ------- -------
Cumulative interest-earning assets 200,929 284,849 456,639 505,423 505,423
------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits 45,252 25,858 32,324 25,858 129,292
Savings deposits 20,140 11,509 14,386 11,509 57,544
Time deposits under $100,000 28,684 82,780 60,267 - 171,731
Time deposits $100,000 and over 30,265 21,503 3,769 - 55,537
Short-term borrowings 5,353 - - - 5,353
------- ------- ------- ------- -------
Total interest-bearing liabilities 129,694 141,650 110,746 37,367 419,457
------- ------- -------- ------- -------
Cumulative interest-bearing liabilities 129,694 271,344 382,090 419,457 419,457
------- ------- ------- ------- -------
Gap analysis:
Interest sensitivity gap $ 71,235 $(57,730) $ 61,044 $ 11,417 $ 85,966
======= ======= ======= ======= =======
Cumulative interest
sensitivity gap $ 71,235 $ 13,505 $ 74,549 $ 85,966 $ 85,966
======= ======= ======= ======= =======
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.55x 1.05x 1.20x 1.20x 1.20x
======= ======= ======= ======= =======
</TABLE>
(1) Nonaccrual loans are reported in the "Over 1 year through 5 years" column.
10
<PAGE> 11
Item 2. (continued)
CAPITAL RESOURCES
The regulatory capital guidelines require banking organizations to
maintain a minimum total capital ratio of 8% of risk-weighted assets (of which
at least 4% must be Tier I capital). The Company's total capital ratios under
the risk-weighted guidelines were 17.74%, 17.88% and 18.06% as of September 30,
1997, December 31, 1996, and September 30, 1996, respectively, which included
Tier I capital ratios of 16.49%, 16.62%, and 16.80%, respectively. These
ratios are well above the minimum risk-weighted capital requirements.
In addition, the Company and its subsidiary banks must maintain a
minimum Tier I leverage ratio (Tier I capital to total adjusted consolidated
assets) of at least 3%. Capital, as defined under these guidelines, is total
shareholders' equity less goodwill and excluding unrealized holding gains and
losses on available-for-sale securities of the Company. The Company's Tier I
leverage ratios were 10.40%, 10.12%, and 10.01% at September 30, 1997, December
31, 1996, and September 30, 1996, respectively.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the three and nine months ended September 30, 1997 was
$1,575,000 and $4,654,000, respectively, compared to $1,843,000 and $4,750,000
for the comparable periods in the prior year. The current year decrease in
both the three and nine month earnings figures was the result of approximately
$400,000 in tax exempt interest income which was recovered during the third
quarter of 1996. This recovery resulted from the payoff of a loan which had
been on nonaccrual status.
Earnings per common share were $.57, and $1.70 for the three and nine
months ended September 30, 1997, respectively, compared to $.68, and $1.76 for
the same periods in 1996. Net income for the first nine months of 1997
resulted in an annualized return on average assets (ROA) of 1.16% compared to
1.23% in the prior year, and an annualized return on average shareholders'
equity (ROE) of 11.36% compared to 12.79% in the prior year. ROE continues to
be negatively impacted by the Company's strong equity position.
NET INTEREST INCOME
As reflected in the Selected Statistical Information table on the
following page, net interest income on a tax-equivalent basis decreased $30,000
in the first nine months of 1997 when compared to the first nine months of
1996; and, the net interest margin declined from 4.48% in 1996 to 4.30% in
1997. The decrease in net interest income was due to the recovery of
approximately $400,000 in tax exempt interest income, during the third quarter
of 1996, on a loan that was on a nonaccrual status. The decrease in the net
interest margin was due in part to the aforementioned tax exempt income in the
prior year; however, the net interest margin was also negatively impacted by a
decrease in the average yield on the loan portfolio. The decrease was the
result of a combination of the increased lending activity during 1997 and the
highly competitive nature of the local banking market. The Company's cost of
funds remained unchanged at 4.33%.
11
<PAGE> 12
Item 2. (continued)
SELECTED STATISTICAL INFORMATION
The following is selected statistical information for Southside Bancshares
Corp. and subsidiaries.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE INTEREST RATES
(dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE Average
INTEREST RATES Interest Rates
AVERAGE INCOME\ EARNED\ Average Income\ Earned\
BALANCE EXPENSE PAID(3) Balance Expense Paid(3)
------- ------- -------- ------- ------- --------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned discount (1) (2) (3) $307,118 $20,577 8.93% $296,274 $20.631 9.28%
Investments in debt securities:
Taxable(4) 158,854 7,233 6.07 146,249 6.548 5.97
Exempt from Federal income tax (3) (4) 22,775 1,435 8.40 23,088 1.442 8.33
Short-term investments 15,020 602 5.34 18,786 748 5.31
------- ----- ------- ------
Total interest-earning assets/
interest income/overall yield (3) 503,767 29,847 7.90 484,397 29,369 8.08
------ ==== ------ ====
Allowance for possible loan losses (6,034) (5,576)
Cash and due from banks 14,695 15,439
Other assets 20,647 18,809
------- =======
TOTAL ASSETS $533,075 $513,069
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings
deposits $187,399 4,324 3.08% $183,763 4,221 3.06%
Time deposits 225,731 9,024 5.33 215,753 8,671 5.36
Short-term borrowings 4,730 158 4.45 1,942 79 5.42
Debt of employee stock ownership plan 1,657 105 8.45 2,133 132 8.25
------- ----- ------- -----
Total interest-bearing
liabilities/interest-
expense/overall rate 419,517 13,611 4.33 403,591 1,103 4.33
------ ==== ----- ====
Noninterest-bearing demand deposits 54,944 54,991
Other liabilities 4,003 4,953
Shareholders' equity 54,611 49,534
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $533,075 $513,069
======= =======
NET INTEREST INCOME $16,236 $16,266
====== ======
NET INTEREST MARGIN ON AVERAGE INTEREST-
EARNING ASSETS 4.30% 4.48%
==== ====
</TABLE>
(1) Interest income includes loan origination fees.
(2) Average balance includes nonaccrual loans.
(3) Interest yields are presented on a tax-equivalent basis. Nontaxable
income has been adjusted upward by the amount of Federal income tax
that would have been paid if the income tax had been taxable at a rate
of 34%, adjusted downward by the disallowance of the interest cost to
carry nontaxable loans and securities subsequent to December 31, 1982.
(4) Includes investments available-for-sale.
12
<PAGE> 13
Item 2. (continued)
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses remained at a relatively low
level of $45,000 during the first nine months of 1997. Due to the net
recoveries of $470,000 during the first nine months of 1997 and the Company's
analysis of the adequacy of the allowance for possible loan losses, management
determined it was not necessary to record significant provisions for possible
loan losses during the first nine months of the year. Management continues to
assess the adequacy of the allowance for possible loan losses on a regular
basis throughout the year.
NONINTEREST INCOME
Noninterest income increased in both the third quarter and first nine
months of 1997, in comparison to the same periods in the prior year. On a
year-to-date basis, the $145,000 increase was due, in part, to a $91,000
increase in Trust department revenue, which was caused by the strong stock
market performance through September 30, 1997. The remainder of the increase
was the result of an increase in service charge revenue. The $21,000 increase
in the third quarter noninterest income was also the result of increases in
Trust department and service charge revenue.
NONINTEREST EXPENSE
Noninterest expense for the first nine months of 1997 increased
$483,000 when compared to the first nine months of the prior year. The
increase was largely attributable to increases in other real estate owned
(OREO) expense, which increased $117,000, attorney fees which increased
$48,000, and amortization of the Company's investments in low-income housing
projects, which increased $76,000. The OREO expenses relate to a sixty-one
unit mobile home park, on which the Company's lead bank foreclosed in October
1996. The past nine months have been spent renovating the units, and
management expects to have a majority of the units rented by the end of the
year. Once the project is near full occupancy it will be self sufficient. The
increase in attorney fees was the result of various litigation which arises in
the normal course of business. The investments in low-income housing projects
are amortized in direct proportion to the amount of tax credits utilized, and
management has found these low-income housing projects to be a valuable tool in
fulfilling our commitment to community reinvestment, yet still allowing the
Company to fulfill its commitment to its shareholders. Third quarter
noninterest expense was $144,000 higher than the previous year. This increase
was also due to the aforementioned OREO expenses and low-income housing
credits.
INCOME TAXES
Federal income tax expense for the first nine months of 1997 was
$1,680,000 compared to $1,701,000 in the first nine months of 1996. The
effective tax rate increased slightly to 26.52% in 1997 from 26.37% in 1996.
This increase was due to a decrease in tax exempt loan income.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing Financial Assets and Extinguishment of Liabilities (SFAS 125).
SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on
consistent applications of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
SFAS 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application was not
permitted.
13
<PAGE> 14
Item 2. (continued)
The implementation of SFAS 125 did not have a material effect on the Company's
consolidated financial position, results of operations, or liquidity.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share
(SFAS 128). SFAS 128 establishes standards for computing and presenting
earnings per share (EPS). SFAS 128 simplifies existing standards for computing
EPS and makes them comparable to international standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the components of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of
the Company. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and requires
restatement of all prior-period EPS data presented. The Company does not
believe the adoption of SFAS 128 will have a material effect on its financial
condition or results of operations.
COMMON STOCK - MARKET PRICE AND DIVIDENDS
The table below sets forth the high, low and closing bid prices of the
Company's common stock for the periods presented. The Company's common stock
is traded on the National Association of Securities Dealers Automated Quotation
System/Small-Cap Market System ("NASDAQ/SCM") under the symbol SBCO.
Accordingly, information included below represents the high and low bid prices
of the common stock reported on NASDAQ/SCM. As reflected in the table below,
the quarterly dividend was increased for the sixth consecutive quarter. The
current quarterly dividend of $.18 per common share represents an 80 percent
increase over the past two years.
<TABLE>
<CAPTION>
Book Dividends Paid Per
High Bid Low Bid Close Value Market/Book (1) Common Share
-------- ------- ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
3rd Quarter - 1997 $40.50 $33.50 $33.50 $20.57 162.86% $ 0.18
2nd Quarter - 1997 37.00 21.50 37.00 20.14 183.71 0.17
1st Quarter - 1997 25.00 22.75 24.50 19.60 125.00 0.16
4th Quarter - 1996 22.75 20.50 22.75 19.30 117.88 0.15
3rd Quarter - 1996 20.50 20.25 20.50 18.84 108.81 0.13
2nd Quarter - 1996 20.00 19.00 20.00 18.25 109.59 0.12
1st Quarter - 1996 21.00 19.00 19.00 18.00 105.56 0.10
(1) Based on the closing bid price of the Company's common stock at quarter end.
</TABLE>
14
<PAGE> 15
Item 2. (continued)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company had certain routine
lawsuits pending at September 30, 1997. In the opinion of management, after
consultation with legal counsel, none of these lawsuits will have a material
adverse effect on the consolidated financial condition of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation on Net Income Per Common Share
Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHSIDE BANCSHARES CORP.
-----------------------------------
November 12, 1997 /s/ Thomas M. Teschner
- ----------------- -----------------------------------
Thomas M. Teschner
President
(Principal Executive Officer)
November 12, 1997 /s/ Joseph W. Pope
- ----------------- -----------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller, and Principal
Accounting Officer)
16
<PAGE> 1
EXHIBIT 11
SOUTHSIDE BANCSHARES CORP.
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Primary Earnings Per Common Share (1)
- ----------------------------------
Net Income................................................ $4,654,000 $4,750,000
========= =========
Weighted daily average number of common shares
outstanding............................................... 2,739,926 2,698,864
========= =========
Net income per common share............................... $1.70 $1.76
==== ====
Fully Diluted Earnings Per Common Share (1) (2)
- ---------------------------------------
Net Income................................................ $4,654,000 $4,750,000
========= =========
Weighted daily average number of common shares
outstanding............................................... 2,739,926 2,698,864
Weighted average common stock equivalents due to the dilutive
effect of stock options when utilizing the Treasury stock method.
Per share market price is based on the average per share market
price for the period............................................... 57,234 8,689
------ -----
Total weighted average common shares and stock equivalents
outstanding........................................................ 2,797,160 2,707,553
========= =========
Net income per common share assuming full
dilution........................................................... $1.66 $1.75
==== ====
</TABLE>
Notes:
(1) Daily average shares outstanding for all years have been adjusted to
reflect a 10 for 1 stock split in 1996.
(2) This calculation is submitted in accordance with Regulation S-K
Item 801 (b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHSIDE
BANCSHARES CORP'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH DOCUMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,681
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,498
<INVESTMENTS-CARRYING> 104,042
<INVESTMENTS-MARKET> 105,045
<LOANS> 318,883
<ALLOWANCE> (6,117)
<TOTAL-ASSETS> 537,468
<DEPOSITS> 471,248
<SHORT-TERM> 5,353
<LIABILITIES-OTHER> 4,589
<LONG-TERM> 0
0
0
<COMMON> 2,859
<OTHER-SE> 53,419
<TOTAL-LIABILITIES-AND-EQUITY> 537,468
<INTEREST-LOAN> 20,410
<INTEREST-INVEST> 8,180
<INTEREST-OTHER> 602
<INTEREST-TOTAL> 29,192
<INTEREST-DEPOSIT> 13,348
<INTEREST-EXPENSE> 13,611
<INTEREST-INCOME-NET> 15,581
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,282
<INCOME-PRETAX> 6,334
<INCOME-PRE-EXTRAORDINARY> 6,334
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,654
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
<YIELD-ACTUAL> 4.30
<LOANS-NON> 3,279
<LOANS-PAST> 670
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,602
<CHARGE-OFFS> 275
<RECOVERIES> 745
<ALLOWANCE-CLOSE> 6,117
<ALLOWANCE-DOMESTIC> 6,117
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
