<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 JUNE 30, 1997
------------------------------------------------
OR
[ X ] 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 AUGUST 11, 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 a
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for
the six months and three months ended
June 30, 1997 and June 30, 1996 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1997
and June 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 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE> 3
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, December 31,
ASSETS 1997 1996
----------------- -----------------
<S> <C> <C>
Cash and due from banks $ 21,519 $ 17,156
Federal funds sold 14,000 13,500
Investments in debt securities:
Available-for-sale, at market value 70,393 66,650
Held-to-maturity, at amortized cost
(approximate market value of $109,256
in 1997, and $121,377 in 1996) 108,562 120,644
-------- --------
Total investments in debt securities 178,955 187,294
-------- --------
Loans, net of unearned discount 311,166 294,463
Less allowance for possible loan losses (6,150) (5,602)
-------- --------
Loans, net 305,016 288,861
-------- --------
Bank premises and equipment 11,017 10,785
Other assets 10,387 10,311
-------- --------
TOTAL ASSETS $540,894 $527,907
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 58,314 $ 58,046
Interest-bearing demand and savings 186,221 185,589
Time deposits 226,186 223,641
-------- --------
Total deposits 470,721 467,276
Short-term borrowings 9,693 1,623
Debt of employee stock ownership plan 1,581 1,779
Other liabilities 3,658 4,388
-------- --------
Total liabilities 485,653 475,066
-------- --------
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 5,910 5,819
Retained earnings 48,623 46,448
Unearned employee stock ownership plan shares (1,482) (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 (193) (254)
-------- --------
Total shareholders' equity 55,241 52,841
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $540,894 $527,907
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 13,305 $ 13,130 $ 6,808 $ 6,439
Interest on investments in debt securities:
Taxable 4,901 4,242 2,458 2,257
Exempt from Federal income taxes 618 635 310 311
Interest on short-term investments 370 536 217 300
---------- --------- ---------- ----------
TOTAL INTEREST INCOME 19,194 18,543 9,793 9,307
---------- --------- ---------- ----------
INTEREST EXPENSE:
Interest on interest-bearing demand and savings deposits 2,856 2,773 1,446 1,413
Interest on time deposits 5,941 5,756 3,000 2,857
Interest on short-term borrowings 86 51 52 22
Interest on debt of employee stock ownership plan 71 95 34 37
---------- --------- ---------- ----------
TOTAL INTEREST EXPENSE 8,954 8,675 4,532 4,329
---------- --------- ---------- ----------
NET INTEREST INCOME 10,240 9,868 5,261 4,978
Provision for possible loan losses 30 30 15 15
---------- --------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 10,210 9,838 5,246 4,963
---------- --------- ---------- ----------
NONINTEREST INCOME:
Trust department 505 457 268 240
Service charges on deposit accounts 650 625 329 319
Net losses on sale of other real estate
owned and other foreclosed property (22) (23) (7) (35)
Other 256 244 117 110
---------- --------- ---------- ----------
TOTAL NONINTEREST INCOME 1,389 1,303 707 634
---------- --------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,684 3,650 1,880 1,892
Net occupancy and equipment expense 1,192 1,177 603 597
Data processing 229 243 122 150
Other 2,306 2,040 1,189 1,086
---------- --------- ---------- ----------
TOTAL NONINTEREST EXPENSES 7,411 7,110 3,794 3,725
---------- --------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 4,188 4,031 2,159 1,872
Federal income tax expense 1,109 1,124 578 513
---------- --------- ---------- ----------
NET INCOME $ 3,079 $ 2,907 $ 1,581 $ 1,359
========== ========= ========== ==========
SHARE DATA:
Earnings per common share $ 1.13 $ 1.08 $ 0.58 $ 0.50
========== ========= ========== ==========
Dividends paid per common share $ 0.33 $ 0.22 $ 0.17 $ 0.12
========== ========= ========== ==========
Average common shares outstanding 2,738,799 2,691,667 2,739,926 2,739,985
========== ========= ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,079 $ 2,907
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 821 1,041
Provision for possible loan losses 30 30
Other operating activities, net (1,124) (764)
------- --------
Total adjustments (273) 307
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,806 3,214
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in Federal funds sold (500) 4,450
Proceeds from maturities of and principal payments on
debt securities 24,136 22,068
Purchases of debt securities (15,855) (36,102)
Net (increase) decrease in loans (16,821) 8,375
Recoveries of loans previously charged off 636 443
Proceeds from sales of other real estate owned and other
foreclosed property 165 119
Purchases of bank premises and equipment (790) (269)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (9,029) (916)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)in demand and savings deposits 900 (3,642)
Net increase (decrease) in time deposits 2,545 (64)
Net increase in short-term borrowings 8,070 1,604
Payments to acquire treasury stock (26) (53)
Cash dividends paid (903) (602)
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,586 (2,757)
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS 4,363 (459)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,156 16,930
------- --------
CASH AND CASH EQUIVALENTS, END OF QUARTER $21,519 $ 16,471
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 9,050 $ 8,700
Income taxes 1,510 1,570
======= ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans
$ 106 $ 370
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SOUTHSIDE BANCSHARES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six months ended June
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 six months ended June
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 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>
SIX MONTHS ENDED Twelve Months Ended Six Months Ended
JUNE 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
<S> <C> <C> <C>
EARNINGS
Total interest income $ 19,194 $ 37,868 $ 18,543
Total interest expense 8,954 17,526 8,675
---------- ---------- ----------
Net interest income 10,240 20,342 9,868
Provision for possible loan losses 30 60 30
---------- ---------- ----------
Net interest income after provision for
possible loan losses $ 10,210 $ 20,282 $ 9,838
========== ========== ==========
Net income $ 3,079 $ 6,158 $ 2,907
========== ========== ==========
SHARE DATA
Net income $ 1.13 $ 2.27 $ 1.08
Dividends paid .33 .50 .22
Book value 20.14 19.30 18.25
Tangible book value 20.04 19.18 18.12
Shares outstanding (period-end) 2,743,014 2,836,670 2,847,150
FINANCIAL POSITION
Total assets $ 540,894 $ 527,907 $512,181
Total deposits 470,721 467,276 453,861
Total loans, net of unearned discount 311,166 294,463 294,642
Allowance for possible loan losses 6,150 5,602 5,301
Short-term borrowings 9,693 1,623 2,383
Debt of employee stock ownership plan 1,581 1,779 1,779
Total shareholders' equity 55,241 52,841 50,001
</TABLE>
SELECTED RATIOS
The table below summarizes various selected ratios as of the end of the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED Twelve Months Ended Six Months Ended
JUNE 30, 1997(1) December 31,1996 June 30, 1996(1)
---------------- ------------------ ----------------
<S> <C> <C> <C>
Loan-to-deposit ratio 66.10% 63.02% 64.92%
Allowance for possible loan losses to total
loans 1.98 1.90 1.80
Return on average assets 1.16 1.20 1.14
Return on average shareholders' equity 11.41 12.27 11.89
Net interest margin on average interest-
earning assets 4.27 4.42 4.30
Average shareholders' equity to average total
assets 10.19 9.75 9.59
Tier I leverage capital to adjusted total
consolidated assets less
intangibles 10.34 10.12 9.83
Tier I capital to risk-weighted assets 16.54 16.62 16.49
Total capital to risk-weighted assets 17.80 17.88 17.75
</TABLE>
(1) Statistical information is annualized where applicable.
7
<PAGE> 8
Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company have increased approximately
$13,000,000 or 2.5% during 1997 to $540,894,000 at June 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)
JUNE 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 63,094 $ 62,016 $ 64,874
Real estate-commercial 86,552 82,045 84,638
Real estate-construction 28,114 26,067 19,595
Real estate-residential 97,005 96,039 97,256
Consumer 25,606 17,304 16,559
Industrial revenue bonds 5,861 6,373 7,289
Other 4,934 4,619 4,431
-------- -------- --------
$311,166 $294,463 $294,642
======== ======== ========
</TABLE>
The Company's loan portfolio totaled $311,166,000 at June 30, 1997.
This represents an increase of approximately $16.7 million since December 31,
1996. Approximately $8.3 million of the increase is attributable to an
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. The remainder of the increase was due
to increases in commercial and construction real estate loans. The continued
stable economy and the recent wave of mergers and acquisitions in the local
banking environment, have resulted in strong loan demand in these two lending
categories.
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(dollars in thousands)
SIX MONTHS ENDED Twelve Months Ended Six Months Ended
JUNE 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 5,602 $ 5,635 $ 5,635
Provision charged to expense 30 60 30
Loans charged off (118) (1,219) (807)
Recoveries 636 1,126 443
------- ------- -------
BALANCE AT END OF PERIOD $ 6,150 $ 5,602 $ 5,301
======= ======= =======
</TABLE>
The balance of the allowance for possible loan losses has increased by
$548,000 during the first six months of 1997, as recoveries have exceeded
charge-offs by $518,000, and the Company has recorded a provision for possible
loan losses during the first six months of $30,000. 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
1.98% as of June 30, 1997 compared to 1.90% and 1.80% at December 31, 1996 and
June 30, 1996, respectively, due to the aforementioned net recoveries during
the first six months of the year.
8
<PAGE> 9
Item 2. (continued)
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(dollars in thousands)
JUNE 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
<S> <C> <C> <C>
Nonaccrual loans $ 1,385 $ 1,037 $ 2,718
Loans past due 90 days or more and still
accruing interest 95 146 2,067
TOTAL NONPERFORMING LOANS 1,480 4,785
Other real estate owned 976 860 769
------ ------- -------
TOTAL NONPERFORMING ASSETS $2,456 $ 2,043 $ 5,554
====== ======= =======
RATIOS:
Total nonperforming loans as % of total loans 0.48% 0.40% 1.62%
Nonperforming assets as % of total loans and
other real estate owned 0.79 0.69 1.88
Nonperforming assets as % of total assets 0.45 0.39 1.08
</TABLE>
Nonperforming assets totaled $2,456,000 or 0.45% of total assets at
June 30, 1997 compared to $2,043,000 or 0.39% and $5,554,000 or 1.08% at
December 31, 1996 and June 30, 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 June 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 approximately $8.3
million 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 approximately $3.4 million during the first
six months of 1997. The majority of the increase was in time deposits, as
noninterest bearing demand deposits and savings accounts increased only
slightly. The increase in time deposits was largely due to additional public
funds the subsidiary banks were able to obtain at competitive prices.
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to
repurchase. The $8,070,000 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.
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 .96x. 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)
JUNE 30, 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 $ 14,000 $ - $ - $ - $ 14,000
Investments available-for-sale 14,178 12,495 37,566 6,154 70,393
Investments held-to-maturity 5,996 14,332 68,849 19,385 108,562
Loans, net of unearned discount (1) 153,806 49,713 87,481 20,166 311,166
-------- -------- ------- -------- --------
Total interest-earning assets 187,980 76,540 193,896 45,705 504,121
-------- -------- -------- -------- --------
Cumulative interest-earning assets 187,980 264,520 458,416 504,121 504,121
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 44,858 25,633 32,041 25,633 128,165
Savings deposits 20,320 11,611 14,514 11,611 58,056
Time deposits under $100,000 39,451 72,626 61,167 - 173,244
Time deposits $100,000 and over 12,992 36,481 3,469 - 52,942
Short-term borrowings 9,693 - - - 9,693
Debt of employee stock ownership plan 1,581 - - - 1,581
-------- -------- -------- -------- --------
Total interest-bearing liabilities 128,895 146,351 111,191 37,244 423,681
-------- -------- -------- -------- --------
Cumulative interest-bearing liabilities 128,895 275,246 386,437 423,681 423,681
-------- -------- -------- -------- --------
Gap analysis:
Interest sensitivity gap $ 59,085 $(69,811) $ 82,705 $ 8,461 $ 80,440
======== ======== ======== ======== ========
Cumulative interest
sensitivity gap $ 59,085 $(10,726) $ 71,979 $ 80,440 $ 80,440
======== ======== ======== ======== ========
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.46x 0.96x 1.19x 1.19x 1.19x
===== ===== ===== ===== =====
</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 17.80%, 17.88% and 17.75% as of June 30,
1997, December 31, 1996, and June 30, 1996, respectively, which included Tier I
capital ratios of 16.54%, 16.62%, and 16.49%, 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 10.34%, 10.12%, and 9.83% at June 30, 1997, December 31,
1996, and June 30, 1996, respectively.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $3,079,000 for the six months ended June 30, 1997
compared to $2,907,000 for the six months ended June 30, 1996, which represents
a $172,000 or 6% increase over the prior year. The increase was largely due to
the net effect of increases in net interest income and noninterest income,
partially offset by an increase in noninterest expense. Net income for the
second quarter of 1997 was $1,581,000 compared to $1,359,000 in the second
quarter of 1996. This increase in second quarter earnings was attributable to
the same factors that affected the year-to-date earnings.
Earnings per common share were $1.13 for the first half of 1997
compared to $1.08 for the first half of 1996, and the earnings per common share
were $0.58 and $0.50 for the second quarter of 1997 and 1996, respectively.
Net income for the first six months of 1997 resulted in an annualized return on
average assets (ROA) of 1.16% compared to 1.20% in the prior year, and an
annualized return on average shareholders' equity (ROE) of 11.41% compared to
12.27% 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 increased
$336,000 in the first six months of 1997 when compared to the first six months
of 1996; however, the net interest margin declined from 4.30% in 1996 to 4.27%
in 1997. The increase in net interest income was due to an increase in average
interest-earning assets and a decrease in the Company's cost of funds. 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 average
interest-bearing liabilities. 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
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>
SIX MONTHS ENDED JUNE 30,
- ---------------------------------------------------------------------------------------------------------------------------------
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) $301,515 $13,416 8.90% $295,367 $13,267 8.98%
Investments in debt securities:
Taxable(4) 160,966 4,901 6.09 143,262 4,242 5.92
Exempt from Federal income tax (3) (4) 22,390 944 8.44 22,643 971 8.58
Short-term investments 14,996 370 4.93 20,088 536 5.34
------- ------- -------- -------
Total interest-earning assets/interest
income/overall yield (3) 499,867 19,631 7.85 481,360 19,016 7.90
Allowance for possible loan losses (5,855) ======= ===== (5,583) ====== ====
Cash and due from banks 14,607 15,562
Other assets 20,997 18,485
-------- --------
TOTAL ASSETS $529,616 $509,824
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings deposits $187,022 2,856 3.05% $182,193 2,773 3.04%
Time deposits 224,640 5,941 5.29 214,721 5,756 5.36
Short-term borrowings 3,907 86 4.40 1,912 51 5.33
Debt of employee stock ownership plan 1,690 71 8.40 2,304 95 8.25
-------- ------- --------- -----
Total interest-bearing
liabilities/interest-
expense/overall rate 417,259 8,954 4.29 401,130 8,675 4.33
Noninterest-bearing demand deposits 53,807 ------- ==== 54,999 ----- ====
Other liabilities 4,571 4,803
Shareholders' equity 53,979 48,892
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $529,616 $509,824
======== ========
NET INTEREST INCOME $10,677 $10,341
======= ========
NET INTEREST MARGIN ON AVERAGE
INTEREST-EARNING ASSETS 4.27% 4.30%
===== =====
</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 $30,000 during the first six months of 1997. Due to the net
recoveries of $518,000 during the six 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 six 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 first half and second quarter
of 1997 when compared to the comparable periods from the prior year. Both
increases were largely due to an increase in Trust department earnings, which
has benefited from the record-breaking performance of the stock market during
1997.
NONINTEREST EXPENSE
Noninterest expense for the first six months of 1997 increased
$301,000 when compared to the first six months of the prior year, and the
increase was largely attributable to increases in other real estate owned
(OREO) expense, which increased $103,000, attorney fees which increased
$54,000, 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 nearly self
sufficient. 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.
INCOME TAXES
Federal income tax expense for the first six months of 1997 was
$1,109,000 compared to $1,124,000 in the first six months of 1996. The
effective tax rate decreased to 26.48% in 1997 from 27.88% 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 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.
<TABLE>
<CAPTION>
Book Dividends Paid Per
High Bid Low Bid Close Value Market/Book Common Share
-------- ------- ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company had certain routine
lawsuits pending at June 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.
14
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's regular Annual Meeting of Shareholders was held on April
24, 1997. Proxies for the meeting were solicited pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended.
At the meeting, shareholders (i) elected three Class II Directors,
each to serve for a term of three years, and (ii) ratified the appointment by
the Board of Directors, KPMG Peat Marwick LLP as the firm of independent
certified public accountants to audit the accounts of the Company for the
fiscal year ended December 31, 1997.
Management's Director nominees were: Joseph W. Beetz, Ralph Crancer,
Jr., and Howard F. Etling.
The Directors elected at the meeting were: Joseph W. Beetz, Ralph
Crancer, Jr., and Howard F. Etling. The names of each of the Directors whose
term of office as a Director continued after the meeting is as follows:
Douglas P. Helein (term expiring 1998); Earle J. Kennedy, Jr. (term expiring
1998); Daniel J. Queen (term expiring 1998); Norville K. McClain (term expiring
1999); Richard G. Schroeder, Sr. (term expiring 1999); Thomas M. Teschner
(term expiring 1999); Joseph W. Beetz (term expiring 2000); Ralph Crancer, Jr.
(term expiring 2000); and Howard F. Etling (term expiring 2000).
The following is a tabulation of voting for Directors:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Voted Voted
Nominee For Against Withheld
----------------------- ---------- --------- ---------
<S> <C> <C> <C>
Joseph W. Beetz 2,555,653 1,036 5,621
Ralph Crancer, Jr. 2,554,653 2,036 5,621
Howard F. Etling 2,556,209 480 5,621
</TABLE>
With respect to the ratification of the appointment of KPMG Peat
Marwick LLP, there were 2,557,653 shares voted "For" and 1,577 shares voted
"Against", with 3,133 shares abstaining.
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.
August 11, 1997 /s/ Thomas M. Teschner
---------------------------------------
Thomas M. Teschner
President
(Principal Executive Officer)
August 11, 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>
Six Months Ended June 30,
1997 1996
---- ----
<S> <C> <C>
Primary Earnings Per Common Share (1)
Net Income $3,079,000 $2,907,000
========== ==========
Weighted daily average number of common shares outstanding 2,738,799 2,691,667
========== ==========
Net income per common share $1.13 $1.08
==== =====
Fully Diluted Earnings Per Common Share (1) (2)
Net Income $3,079,000 $2,907,000
========== ==========
Weighted daily average number of common shares outstanding 2,738,799 2,691,667
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 42,466 8,689
---------- ---------
Total weighted average common shares and stock equivalents
outstanding 2,781,265 2,700,356
========== =========
Net income per common share assuming full
dilution $1.11 $1.08
===== =====
</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%.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SOUTHSIDE BANCSHARE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,519
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,393
<INVESTMENTS-CARRYING> 108,562
<INVESTMENTS-MARKET> 109,256
<LOANS> 311,166
<ALLOWANCE> 6,150
<TOTAL-ASSETS> 540,894
<DEPOSITS> 470,721
<SHORT-TERM> 9,693
<LIABILITIES-OTHER> 3,658
<LONG-TERM> 1,581<F1>
0
0
<COMMON> 2,859
<OTHER-SE> 52,382
<TOTAL-LIABILITIES-AND-EQUITY> 540,894
<INTEREST-LOAN> 13,305
<INTEREST-INVEST> 5,519
<INTEREST-OTHER> 370
<INTEREST-TOTAL> 19,194
<INTEREST-DEPOSIT> 8,797
<INTEREST-EXPENSE> 8,954
<INTEREST-INCOME-NET> 10,240
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,411
<INCOME-PRETAX> 4,188
<INCOME-PRE-EXTRAORDINARY> 4,188
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,079
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.27
<LOANS-NON> 1,385
<LOANS-PAST> 95
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,602
<CHARGE-OFFS> 118
<RECOVERIES> 636
<ALLOWANCE-CLOSE> 6,150
<ALLOWANCE-DOMESTIC> 6,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> 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>
