<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 MARCH 31, 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 MAY 13, 1997, the number of shares outstanding of the registrant's
common stock was 2,835,670.
<PAGE> 2
SOUTHSIDE BANCSHARES CORP.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for
the three months ended March 31, 1997
and March 31, 1996 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1997 and March
31, 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 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE> 3
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
ASSETS 1997 1996
---------- --------
<S> <C> <C>
Cash and due from banks $ 15,201 $ 17,156
Federal funds sold 19,400 13,500
Investments in debt securities:
Available-for-sale, at market value 66,903 66,650
Held-to-maturity, at amortized cost
(approximate market value of $117,176
in 1997, and $121,377 in 1996) 117,175 120,644
-------- --------
Total investments in debt securities 184,078 187,294
-------- --------
Loans, net of unearned discount 297,093 294,463
Less allowance for possible loan losses (6,087) (5,602)
-------- --------
Loans, net 291,006 288,861
-------- --------
Bank premises and equipment 10,654 10,785
Other assets 10,286 10,311
-------- --------
TOTAL ASSETS $530,625 $527,907
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 54,929 $ 58,046
Interest-bearing demand and savings 187,302 185,589
Time deposits 224,352 223,641
-------- --------
Total deposits 466,583 467,276
Short-term borrowings 3,751 1,623
Debt of employee stock ownership plan 1,581 1,779
Other liabilities 5,014 4,388
-------- --------
Total liabilities 476,929 475,066
-------- --------
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 5,845 5,819
Retained earnings 47,508 46,448
Unearned employee stock ownership plan shares (1,532) (1,581)
Treasury stock, 23,340 shares in 1997 and 22,340 shares in 1996 (476) (450)
Net unrealized losses on available-for-sale securities (508) (254)
-------- --------
Total shareholders' equity 53,696 52,841
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $530,625 $527,907
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,497 $ 6,691
Interest on investments in debt securities:
Taxable 2,443 1,985
Exempt from Federal income taxes 308 324
Interest on short-term investments 153 236
---------- -----------
TOTAL INTEREST INCOME 9,401 9,236
---------- -----------
INTEREST EXPENSE:
Interest on interest-bearing demand and savings deposits 1,410 1,360
Interest on time deposits 2,941 2,899
Interest on short-term borrowings 34 29
Interest on ESOP debt 37 58
---------- ----------
TOTAL INTEREST EXPENSE 4,422 4,346
---------- ----------
NET INTEREST INCOME 4,979 4,890
Provision for possible loan losses 15 15
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 4,964 4,875
---------- ----------
NONINTEREST INCOME:
Trust department 237 217
Service charges on deposit accounts 321 306
Net gains (losses) on sales of other real estate
owned and other foreclosed property (15) 12
Other 139 146
---------- ----------
TOTAL NONINTEREST INCOME 682 681
---------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,804 1,758
Net occupancy and equipment expense 589 580
Data processing 107 93
Other 1,117 966
---------- ----------
TOTAL NONINTEREST EXPENSES 3,617 3,397
---------- ----------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 2,029 2,159
Federal income tax expense 531 611
---------- ----------
NET INCOME $ 1,498 $ 1,548
========== ==========
SHARE DATA:
Earnings per common share $ 0.55 $ 0.58
========== ==========
Dividends paid per common share $ 0.16 $ 0.10
========== ==========
Average common shares outstanding 2,737,671 2,668,965
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,498 $ 1,548
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 329 509
Provision for possible loan losses 15 15
Other operating activities, net 530 136
------- --------
Total adjustments 874 660
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,372 2,208
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in Federal funds sold (5,900) (4,575)
Proceeds from maturities of and principal payments on
debt securities 10,657 10,115
Purchases of debt securities (7,891) (16,939)
Net (increase) decrease in loans (2,704) 11,786
Recoveries of loans previously charged off 544 210
Proceeds from sales of other real estate owned and other
foreclosed property 84 36
Purchases of bank premises and equipment (88) (160)
------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,298) 473
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand and savings deposits (1,404) (4,595)
Net increase in time deposits 711 1,619
Net increase (decrease) in short-term borrowings 2,128 1,361
Payments to acquire treasury stock (26) -
Cash dividends paid (438) (274)
------- --------
NET CASH USED IN FINANCING ACTIVITIES 971 (1,889)
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,955 792
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,156 16,930
------- --------
CASH AND CASH EQUIVALENTS, END OF QUARTER $15,201 $ 17,722
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 4,207 $ 4,219
Income taxes - 325
======= ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans $ 119 $ 23
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SOUTHSIDE BANCSHARES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three months ended March 31, 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 three months ended
March 31, 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
1993, 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>
THREE MONTHS ENDED Twelve Months Ended Three Months Ended
MARCH 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
EARNINGS
Total interest income $ 9,401 $ 37,868 $ 9,236
Total interest expense 4,422 17,526 4,346
---------- ---------- ------
Net interest income 4,979 20,342 4,890
Provision for possible loan losses 15 60 15
----------- ---------- ------
Net interest income after provision for
possible loan losses $ 4,964 $ 20,282 $ 4,875
========== ========== ======
Net income $ 1,498 $ 6,158 $ 1,548
========== ========== =====
SHARE DATA
Net income $ 0.55 $ 2.27 $ 0.58
Dividends paid .16 .50 .10
Book value 19.60 19.30 18.00
Tangible book value 19.49 19.18 17.86
Shares outstanding (period-end) 2,835,670 2,836,670 2,849,650
FINANCIAL POSITION
Total assets $ 530,625 $ 527,907 $ 512,325
Total deposits 466,583 467,276 454,591
Total loans, net of unearned discount 297,093 294,463 291,813
Allowance for possible loan losses 6,087 5,602 5,644
Short-term borrowings 3,751 1,623 2,140
Debt of employee stock ownership plan 1,581 1,779 1,779
Total shareholders' equity 53,696 52,841 49,350
</TABLE>
SELECTED RATIOS
The table below summarizes various selected ratios as of the end of the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED Twelve Months Ended Three Months Ended
MARCH 31, 1997(1) December 31, 1996 March 31, 1996(1)
-------------- ----------------- ---------------
<S> <C> <C> <C>
Loan-to-deposit ratio 63.67% 63.02% 64.19%
Allowance for possible loan losses to total
loans 2.05 1.90 1.93
Return on average assets 1.14 1.20 1.22
Return on average shareholders' equity 11.22 12.27 12.89
Net interest margin on average interest-
earning assets 4.19 4.42 4.28
Average shareholders' equity to average total
assets 10.18 9.75 9.49
Tier I leverage capital to adjusted total
consolidated assets less intangibles 10.28 10.12 9.71
Tier I capital to risk-weighted assets 17.01 16.62 16.21
Total capital to risk-weighted assets 18.26 17.88 17.47
</TABLE>
(1) Statistical information is annualized where applicable.
7
<PAGE> 8
Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company have increased slightly during 1997
to $530,625,000 at March 31, 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)
MARCH 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 60,036 $ 62,016 $ 57,185
Real estate-commercial 82,981 82,045 86,704
Real estate-construction 28,228 26,067 14,062
Real estate-residential 94,438 96,039 97,916
Consumer 20,656 17,304 16,991
Industrial revenue bonds 6,102 6,373 7,352
Other 4,652 4,619 11,603
-------- -------- --------
$297,093 $294,463 $291,813
======== ======== ========
</TABLE>
The Company's loan portfolio totaled $297,093,000 at March 31, 1997. This
represents an increase of approximately $2.6 million since December 31, 1996
and $5.3 million over the quarter ending March 31, 1996. The majority of the
increase was in the consumer loan category, due to automobile financing
activities, which the Company began to focus on late in the fourth quarter of
1996. The remainder of the loan categories experienced fluctuations which
largely offset one another. Fluctuations in these categories are not unusual
due to the nature of the underlying loans and lines of credit.
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(dollars in thousands)
THREE MONTHS ENDED Twelve Months Ended Three Months Ended
MARCH 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 5,602 $ 5,635 $ 5,635
Provision charged to expense 15 60 15
Loans charged off (74) (1,219) (216)
Recoveries 544 1,126 210
------ ------ ------
BALANCE AT END OF PERIOD $ 6,087 $ 5,602 $ 5,644
======= ======= =======
</TABLE>
The balance of the allowance for possible loan losses has increased by
$485,000 during the first three 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 three months of $15,000. 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
allowance for possible loan losses as a percentage of total loans increased to
2.05% as of March 31, 1997 compared to 1.90% and 1.93% at December 31, 1996 and
March 31, 1996, respectively, due to the aforementioned net recoveries during
the first three months of the year.
8
<PAGE> 9
s
Item 2. (continued)
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(dollars in thousands)
MARCH 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
Nonaccrual loans $ 1,001 $ 1,037 $ 2,495
Loans past due 90 days or more and still
accruing interest 391 146 1,558
------- ------- -------
TOTAL NONPERFORMING LOANS 1,392 1,183 4,053
Other real estate owned 895 860 556
------- ------- -------
TOTAL NONPERFORMING ASSETS $ 2,287 $ 2,043 $ 4,609
======= ======= =======
RATIOS:
Total nonperforming loans as % of total
loans 0.47% 0.40% 1.39%
Nonperforming assets as % of total loans and
other real estate owned 0.77 0.69 1.58
Nonperforming assets as % of total assets 0.43 0.39 0.90
</TABLE>
Nonperforming assets totaled $2,287,000 or 0.43% of total assets at March 31,
1997 compared to $2,043,000 or 0.39% and $4,609,000 or 0.90% at December 31,
1996 and March 31, 1996, respectively. Slight fluctuations in the level of
nonperforming assets are a normal part of the Company's business. However,
management is cognizant of the need to continually ensure that nonperforming
assets remain at acceptably low levels.
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 March 31, 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 approximately $3.2 million
since December 31, 1996 due in 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 decreased $693,000 during the first quarter of 1997.
Noninterest-bearing demand deposits decreased approximately $3.1 million as
corporate customers continue to become more sophisticated in managing their
cash positions, and are finding more ways to keep their noninterest-bearing
demand deposits at a minimum. This decline was partially offset by an increase
in interest-bearing demand and savings deposits of approximately $1.7 million
and an increase of $711,000 in time deposits during the first quarter of 1997.
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to
repurchase and a U.S. Treasury tax and loan note account. The increase in
securities sold under agreement to repurchase was due to a new 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.
9
<PAGE> 10
Item 2. (continued)
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 1.03x. 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.
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)
MARCH 31, 1997
<TABLE>
<CAPTION>
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 $ 19,400 $ - $ - $ - $ 19,400
Investments available-for-sale 12,512 11,656 39,558 3,177 66,903
Investments held-to-maturity 9,108 16,556 68,774 22,737 117,175
Loans, net of unearned discount (1) 146,090 57,278 77,348 16,377 297,093
------- ------- ------- ------- -------
Total interest-earning assets 187,110 85,490 185,680 42,291 500,571
------- ------- ------- ------- -------
Cumulative interest-earning assets 187,110 272,600 458,280 500,571 500,571
------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits 45,098 25,770 32,212 25,770 128,850
Savings deposits 20,458 11,690 14,614 11,690 58,452
Time deposits under $100,000 38,216 72,727 63,787 - 174,730
Time deposits $100,000 and over 26,038 19,674 3,910 - 49,622
Short-term borrowings 3,751 - - - 3,751
Debt of employee stock ownership plan 1,581 - - - 1,581
------- ------- ------- ------- --------
Total interest-bearing liabilities 135,142 129,861 114,523 37,460 416,986
------- ------- ------- ------- --------
Cumulative interest-bearing liabilities 135,142 265,003 379,526 416,986 416,986
------- ------- ------- ------- -------
Gap analysis:
Interest sensitivity gap $ 51,968 $(44,371) $ 71,157 $ 4,831 $ 83,585
======= ======= ======= ======= =======
Cumulative interest
sensitivity gap $ 51,968 $ 7,597 $ 78,754 $ 83,585 $ 83,585
======= ======= ======= ======= =======
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.38x 1.03x 1.21x 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 18.26%, 17.88% and 17.47% as of March 31, 1997,
December 31, 1996, and March 31, 1996, respectively, which included Tier I
capital ratios of 17.01%, 16.62%, and 16.21%, 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 10.28%, 10.12%, and 9.71% at March 31, 1997, December 31,
1996, and March 31, 1996, respectively.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $1,498,000 for the three months ended March 31, 1997 compared
to $1,548,000 for the three months ended March 31, 1996. This decrease was the
result of the net effects of an increase in net interest income being more than
offset by an increase in noninterest expense. The first quarter net income
results in an earnings per common share of $0.55 in 1997 compared to $0.58 in
1996, and a return on average assets of 1.14% and 1.22% in 1997 and 1996,
respectively.
NET INTEREST INCOME
As reflected in the Selected Statistical Information table on the following
page, net interest income on a tax-equivalent basis increased by $78,000 in the
first three months of 1997 when compared to the first three months of 1996;
however, the net interest margin declined from 4.28% in 1996 to 4.19% in 1997.
The increase in net interest income was largely due to an increase in average
interest-earning assets. The decrease in the net interest margin was due to
the combined effects of a decline in the yield on the Company's loan portfolio
and an increase in interest expense. Business and retail customers continue to
become more sophisticated in their approach towards cash management. They are
continually seeking ways to reduce the level of idle cash and to maximize the
yield on the funds they have available. Management is constantly evaluating
the cost effectiveness of new products and services which will satisfy our
customer needs. Management will also monitor the effects of this issue on the
net interest margin and overall Company earnings, to ensure the Company is able
to sustain acceptable earnings levels.
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>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME\ EARNED\ AVERAGE INCOME\ EARNED\
BALANCE EXPENSE PAID(3) BALANCE EXPENSE PAID(3)
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned discount (1) (2) (3) $298,001 $ 6,553 8.80% $300,880 $ 6,754 8.98%
Investments in debt securities:
Taxable(4) 163,833 2,443 5.96 137,253 1,985 5.78
Exempt from Federal income tax (3) (4) 22,233 471 8.47 22,870 491 8.59
Short-term investments 11,771 153 5.20 17,381 236 5.43
-------- ------- -------- -------
Total interest-earning assets/interest 495,838 9,620 7.76 478,384 9,466 7.91
income/overall yield (3) (5,855) ------- ===== (5,627) ------- ====
Allowance for possible loan losses 14,295 15,293
Cash and due from banks 20,326 18,455
Other assets -------- --------
$524,604 $506,505
TOTAL ASSETS ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings deposits $186,137 1,410 3.03% $178,723 1,360 3.04%
Time deposits 224,452 2,941 5.24 215,276 2,899 5.39
Short-term borrowings 3,180 34 4.28 2,173 29 5.34
Debt of employee stock ownership plan 1,795 37 8.25 2,780 58 8.35
------- ------- -------- -------
Total interest-bearing liabilities/interest
expense/overall rate 415,564 4,422 4.26 398,952 4,346 4.36
------- ==== ------- ====
Non-interest-bearing demand deposits 51,379 54,827
Other liabilities 4,235 4,675
Shareholders' equity 53,426 48,051
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $524,604 $506,505
======== ========
NET INTEREST INCOME $ 5,198 $ 5,120
======= =======
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING 4.19% 4.28%
ASSETS ==== ====
</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 $15,000 during the first three months of 1997, due to the net
recoveries of $470,000 during the first quarter of 1997. Based on 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. Management will continue to assess the adequacy of the
allowance for possible loan losses on a regular basis throughout the year.
NONINTEREST INCOME
Noninterest income remained relatively consistent when comparing the first
quarter of 1997 to the first quarter of 1996. Total noninterest income
increased only $1,000, as increases in service charge and trust department
income were offset by losses on other real estate owned and a decline in other
income.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1997 increased $220,000 when
compared to the first quarter of the prior year, as a result of increases in
salaries and employee benefits and other expenses. The increase in salaries
and employees benefits expense was largely due to normal pay increases. The
increase in other noninterest expense was due to an increase in other real
estate owned expense, fees paid for consumer loan origination referrals, and
amortization of the Company's investments in low-income housing projects.
These investments in low- income housing projects are amortized at the same
rate as the tax credits are utilized. 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.
INCOME TAXES
Federal income tax expense for the first three months of 1997 was $531,000
compared to $611,000 in the first three months of 1996. The effective tax rate
decreased to 26.17% in 1997 from 28.30% in 1996 This decrease was due to
aforementioned tax credits associated with the Company's investment in
low-income housing projects.
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.
The implementation of SFAS 125 did not have a material effect on the
Company's consolidated financial position, results of operations, or liquidity.
13
<PAGE> 14
Item 2. (continued)
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 31, 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.
<TABLE>
<CAPTION>
Book Dividends Paid Per
High Bid Low Bid Close Value Market/Book Common Share
-------- ------- ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company had certain routine
lawsuits pending at March 31, 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
14
<PAGE> 15
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.
May 13, 1997 /s/ Thomas M. Teschner
-----------------------------
Thomas M. Teschner
President
(Principal Executive Officer)
May 13, 1997 /s/ Joseph W. Pope
-----------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller, and Principal
Accounting Officer)
15
<PAGE> 1
EXHIBIT 11
SOUTHSIDE BANCSHARES CORP.
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---------- ---------
<S> <C> <C>
Primary Earnings Per Common Share (1)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,498,000 $1,548,000
========= ===========
Weighted daily average number of common shares outstanding . . . 2,737,671 2,668,965
========= =========
Net income per common share . . . . . . . . . . . . . . . . . . . $.55 $.58
=== ===
Fully Diluted Earnings Per Common Share (1) (2)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,498,000 $1,548,000
========= =========
Weighted daily average number of common shares outstanding . . . 2,737,671 2,668,375
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,744 7,410
--------- ---------
Total weighted average common shares and stock equivalents
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,763,415 2,676,375
========= =========
Net income per common share assuming full
dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $.54 $.58
==== ====
</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%.
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
SOUTHSIDE BANCSHARES CORP'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) DOCUMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,201
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 19,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66,903
<INVESTMENTS-CARRYING> 117,175
<INVESTMENTS-MARKET> 117,176
<LOANS> 297,093
<ALLOWANCE> 6,087
<TOTAL-ASSETS> 530,625
<DEPOSITS> 466,583
<SHORT-TERM> 3,751
<LIABILITIES-OTHER> 5,014
<LONG-TERM> 1,581<F1>
0
0
<COMMON> 2,859
<OTHER-SE> 50,837
<TOTAL-LIABILITIES-AND-EQUITY> 530,625
<INTEREST-LOAN> 6,497
<INTEREST-INVEST> 2,751
<INTEREST-OTHER> 153
<INTEREST-TOTAL> 9,401
<INTEREST-DEPOSIT> 4,351
<INTEREST-EXPENSE> 4,422
<INTEREST-INCOME-NET> 4,979
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,617
<INCOME-PRETAX> 2,029
<INCOME-PRE-EXTRAORDINARY> 2,029
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,498
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 4.19
<LOANS-NON> 1,001
<LOANS-PAST> 391
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,602
<CHARGE-OFFS> 74
<RECOVERIES> 544
<ALLOWANCE-CLOSE> 6,087
<ALLOWANCE-DOMESTIC> 6,087
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>(1) REPRESENTS DEBT OF THE COMPANY'S EMPLOYEE STOCK OWNERSHIP PLAN, WHICH IS
REFLECTED ON THE COMPANY'S FINANCIAL STATEMENT ACCORDING TO GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
</FN>
</TABLE>
