<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, 1998
---------------------------------------------
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, 1998 , the number of shares outstanding of the registrant's
common stock was 2,791,670 .
<PAGE> 2
SOUTHSIDE BANCSHARES CORP.
INDEX
Page
Part I. FINANCIAL INFORMATION ----
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income for
the three months ended March 31, 1998
and March 31, 1997 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1998
and March 31, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantative and Qualitative Disclosures
Regarding Market Risk - There have been
no material changes from the information
provided in the 12/31/97 Annual Report
on Form 10-K
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 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
MARCH 31, 1998 AND DECEMBER 31, 1997
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
ASSETS 1998 1997
--------- ------------
<S> <C> <C>
Cash and due from banks $ 16,046 $ 18,302
Federal funds sold 17,200 17,200
Investments in debt securities:
Available-for-sale, at market value 68,529 73,460
Held-to-maturity, at amortized cost
(approximate market value of $106,994
in 1998, and $100,838 in 1997) 105,733 99,679
--------- ---------
Total investments in debt securities 174,262 173,139
--------- ---------
Loans, net of unearned discount 325,467 326,437
Less allowance for possible loan losses 6,058 6,120
--------- ---------
Loans, net 319,409 320,317
--------- ---------
Bank premises and equipment 11,375 10,866
Other assets 9,951 10,040
--------- ---------
TOTAL ASSETS $ 548,243 $ 549,864
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 58,273 $ 61,308
Interest-bearing demand and savings 197,915 195,804
Time deposits 224,711 226,251
--------- ---------
Total deposits 480,899 483,363
Securities sold under agreements to repurchase 4,260 5,333
Other liabilities 5,371 4,515
--------- ---------
Total liabilities 490,530 493,211
--------- ---------
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 1998 and 1997 2,859 2,859
Surplus 6,090 6,023
Retained earnings 51,938 50,841
Unearned employee stock ownership plan shares (1,334) (1,384)
Treasury stock, at cost, 66,340 and 61,340 shares, respectively (1,996) (1,820)
Net unrealized gains on available-for-sale securities 156 134
--------- ---------
Total shareholders' equity 57,713 56,653
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 548,243 $ 549,864
========= =========
</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, 1998
AND 1997 (dollars in thousands
except share data)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,176 $ 6,497
Interest on investments in debt securities:
Taxable 2,249 2,443
Exempt from Federal income taxes 325 308
Interest on Federal funds sold 270 153
----------- -----------
TOTAL INTEREST INCOME 10,020 9,401
----------- -----------
INTEREST EXPENSE:
Interest on interest-bearing demand and savings deposits 1,552 1,410
Interest on time deposits 3,029 2,941
Interest on securities sold under agreements to repurchase 56 34
Interest on ESOP debt - 37
----------- -----------
TOTAL INTEREST EXPENSE 4,637 4,422
----------- -----------
NET INTEREST INCOME 5,383 4,979
Provision for possible loan losses 15 15
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 5,368 4,964
----------- -----------
NONINTEREST INCOME:
Trust department 263 237
Service charges on deposit accounts 313 321
Net losses on sales of other real estate
owned and other foreclosed property (3) (15)
Other 153 139
----------- -----------
TOTAL NONINTEREST INCOME 726 682
----------- -----------
NONINTEREST EXPENSES:
Salaries and employee benefits 2,012 1,804
Net occupancy and equipment expense 536 589
Data processing 111 107
Other 1,158 1,117
----------- -----------
TOTAL NONINTEREST EXPENSES 3,817 3,617
----------- -----------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 2,277 2,029
Federal income tax expense 639 531
----------- -----------
NET INCOME 1,638 1,498
----------- -----------
OTHER COMPENSATION INCOME, NET OF TAX:
Unrealized gains (losses) on available-for-sale securities 22 (254)
----------- -----------
COMPREHENSIVE INCOME $ 1,660 $ 1,244
=========== ===========
SHARE DATA:
Earnings per common share-basic $ 0.60 $ 0.55
=========== ===========
Earnings per common share-diluted $ 0.59 $ 0.54
=========== ===========
Dividends paid per common share $ 0.20 $ 0.16
=========== ===========
Average common shares outstanding 2,706,192 2,737,671
=========== ===========
Average common shares outstanding, including potentially
dilutive shares 2,783,563 2,763,415
=========== ===========
</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, 1998 AND 1997
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,638 $ 1,498
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 278 329
Provision for possible loan losses 15 15
Other operating activities, net 1,025 530
-------- --------
Total adjustments 1,318 874
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,956 2,372
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in Federal funds sold - (5,900)
Proceeds from maturities of and principal payments on
debt securities 17,933 10,657
Purchases of debt securities (19,007) (7,891)
Net decrease (increase) in loans 778 (2,704)
Recoveries of loans previously charged off 94 544
Proceeds from sales of other real estate owned and other
foreclosed property - 84
Purchases of bank premises and equipment (756) (88)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (958) (5,298)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand and savings deposits (924) (1,404)
Net (decrease) increase in time deposits (1,540) 711
Net (decrease) increase in securities sold under agreements to
repurchase (1,073) 2,128
Payments to acquire treasury stock (176) (26)
Cash dividends paid (541) (438)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,254) 971
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,256) (1,955)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,302 17,156
-------- --------
CASH AND CASH EQUIVALENTS, END OF QUARTER $ 16,046 $ 15,201
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 4,548 $ 4,207
Income taxes 75 -
======== ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans $ 21 $ 119
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SOUTHSIDE BANCSHARES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(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, 1997.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
The Company adopted the provisions of Statement on Financial Accounting
Standards (SFAS) No. 130- Reporting Comprehensive Income (SFAS 130)
retroactively on January 1, 1998. SFAS 130 established standards for reporting
and displaying income and its components (revenues, gains and losses) in a full
set of general purpose financial statements. The statement requires all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comparative financial
statements provided for earlier periods have been restated to reflect the
application of SFAS 130. The implementation of SFAS 130 did not have a material
impact on the Company's consolidated financial statements. The Company's source
of comprehensive income is unrealized gains or losses on available-for-sale
securities. The accumulatived effect of such comprehensive income is included in
shareholders' equity in the consolidated financial statements.
ACQUISITION
On February 25, 1998, the Company entered into a definitive agreement that
provides for the acquisition and merger of Public Service Bank, FSB (PSB) with
the Company's subsidiary bank, South Side National Bank. As of September 30,
1997, PSB had total assets of $70,470,000, stockholders' equity of $4,364,000,
and three offices in the St. Louis metropolitan area. The agreement provides for
the Company to acquire 100% of PSB from its stockholders, who shall receive
either cash, shares of the Company's common stock, or a combination of cash and
the Company's common stock, at the election of each PSB stockholder subject to
certain limitations as set forth in the agreement. The value of the transaction
is expected to be approximately $8.7 million or two times PSB's adjusted book
value as of the closing date. The acquisition should be completed in the second
quarter of 1998, and it is subject to, among other things, regulatory approval.
6
<PAGE> 7
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, 1998 and 1997.
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.
7
<PAGE> 8
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, 1998 December 31 March 31, 1997
-------------- ----------- --------------
<S> <C> <C> <C>
EARNINGS
Total interest income $ 10,020 $ 39,355 $ 9,401
Total interest expense 4,637 18,243 4,422
---------- ---------- ----------
Net interest income 5,383 21,112 4,979
Provision for possible loan losses 15 60 15
---------- ---------- ----------
Net interest income after provision for possible
loan losses $ 5,368 $ 21,052 $ 4,964
========== ========== ==========
Net income $ 1,638 $ 6,302 $ 1,498
========== ========== ==========
SHARE DATA
Earning per common share:
Basic $ 0.60 $ 2.30 $ 0.55
Diluted .59 2.25 0.54
Dividends paid per common share .20 .70 .16
Book value 21.33 20.90 19.60
Tangible book value 21.24 20.81 19.49
Shares outstanding (period-end)(1) 2,792,670 2,797,670 2,835,670
Average shares outstanding 2,706,192 2,735,859 2,737,671
Average shares outstanding, including
potentially dilutive shares 2,783,563 2,798,105 2,763,415
FINANCIAL POSITION
Total assets $ 548,243 $ 549,864 $ 530,625
Total deposits 480,899 483,363 466,583
Total loans, net of unearned discount 325,467 326,437 297,093
Allowance for possible loan losses 6,058 6,120 6,087
Short-term borrowings 4,260 5,333 3,751
Debt of employee stock ownership plan - - 1,581
Total shareholders' equity 57,713 56,653 53,696
</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, 1998(2) December 31, 1997 March 31, 1997(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Loan-to-deposit ratio 67.68% 67.53% 63.67%
Allowance for possible loan losses to total loans 1.86 1.87 2.05
Dividend payout ratio(3) 33.06 30.43 29.22
Return on average assets 1.19 1.18 1.14
Return on average shareholders' equity 11.45 11.44 11.22
Net interest margin on average interest-
earning assets 4.31 4.34 4.19
Average shareholders' equity to average total
assets 10.38 10.28 10.18
Tier I leverage capital to adjusted total
consolidated assets less intangibles 10.41 10.34 10.28
Tier I capital to risk-weighted assets 16.57 16.12 17.01
Total capital to risk-weighted assets 17.83 17.38 18.26
</TABLE>
(1) Shares outstanding at March 31, 1998, December 31, 1997, and March 31, 1997
include 83,389, 86,478, 95,744 shares, respectively, held by ESOP which
have not been allocated to participants' accounts and thus are not
considered outstanding for purposes of computing book value and tangible
book value per share. These unallocated shares are also excluded from the
average shares outstanding used to compute earnings per common share.
(2) Statistical information is annualized where applicable.
(3) Dividends paid per common share divided by basic earnings per common share.
8
<PAGE> 9
Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company decreased slightly during 1998 to
$548,243,000 at March 31, 1998 compared to $549,864,000 at December 31, 1997.
LOAN PORTFOLIO
The Company's loan portfolio consists of business loans to small and medium
size companies, commercial, construction 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
collateral. 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, 1998 December 31, 1997 March 31, 1997
-------------- ----------------- --------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 72,255 $ 69,168 $ 60,036
Real estate-commercial 97,633 98,759 82,981
Real estate-construction 29,455 30,836 28,228
Real estate-residential 91,529 92,028 94,438
Consumer 24,017 23,627 20,656
Industrial revenue bonds 5,238 5,517 6,102
Other 5,340 6,502 4,652
-------- -------- --------
$325,467 $326,437 $297,093
======== ======== ========
</TABLE>
The Company's loan portfolio totaled $325,467,000 at March 31, 1998,
which represents a decrease of $970,000, or less than 1%, since December 31,
1997. However, the loan portfolio increased $28,374,000, or 9.55%, since March
31, 1997. The loan growth was largely due to increases in the commercial and
commercial real estate loan categories during the last three quarters of 1997.
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(in thousands)
THREE MONTHS ENDED Twelve Months Ended Three Months Ended
MARCH 31, 1998 December 31, 1997 March 31, 1997
-------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 6,120 $ 5,602 $ 5,602
Provision charged to expense 15 60 15
Loans charged off (171) (367) (74)
Recoveries 94 825 544
------- ------- -------
BALANCE AT END OF PERIOD $ 6,058 $ 6,120 $ 6,087
======= ======= =======
</TABLE>
The balance of the allowance for possible loan losses has decreased by
$62,000 during the first three months of 1998 as loans charged off slightly
exceeded the level of recoveries on loans previously charged off. In addition,
the Company has recorded provisions 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 was 1.86% as of March 31, 1998 compared to
1.87% and 2.05% at December 31, 1998 and March 31, 1997, respectively.
9
<PAGE> 10
Item 2. (continued)
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(dollars in thousands)
MARCH 31, 1998 December 31, 1997 March 31, 1997
-------------- ----------------- --------------
<S> <C> <C> <C>
Nonaccrual loans $2,957 $2,977 $1,001
Loans past due 90 days or more and still
accruing interest 255 517 391
------ ------ ------
TOTAL NONPERFORMING LOANS 3,212 3,494 1,392
Other real estate owned 1,043 1,024 895
------ ------ ------
TOTAL NONPERFORMING ASSETS $4,255 $4,518 $2,287
====== ====== ======
RATIOS:
Total nonperforming loans as % of total loans 0.99% 1.07% 0.47%
Nonperforming assets as % of total loans and
other real estate owned 1.30 1.38 0.77
Nonperforming assets as % of total assets 0.78 0.82 0.43
</TABLE>
Nonperforming assets totaled $4,255,000 or 0.78% of total assets at March
31, 1998 compared to $4,518,000 or 0.82% and $2,287,000 or 0.43% at December 31,
1997 and March 31, 1997, 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, 1998, 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 increased $1,123,000 since December 31,
1997 due to normal purchases made by the Company to fill gaps in the portfolios
ladder of maturities. To help ensure the Company will have liquidity to meet
lending demand and to mitigate the risk of changes in interest rates, the
Company attempts to have approximately the same amount of securities maturing
each month. In addition, 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 $2,464,000 during the first quarter of 1998.
Noninterest-bearing demand deposits decreased $3,035,000 as the subsidiary banks
experienced a normal seasonal decline in these deposits during the first quarter
of the year. Time deposits decreased $1,540,000 during the first quarter of
1998, as the Company continues to face strong competition for these deposits.
These declines were partially offset by an increase in interest-bearing demand
and savings deposits of $2,111,000.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase declined $1,073,000 during
the first quarter of 1998, due to normal daily fluctuations in the balances of
the underlying accounts.
10
<PAGE> 11
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 1.09x. 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, 1998
<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 $ 17,200 $ -- $ -- $ -- $ 17,200
Investments available-for-sale 16,225 10,962 34,539 6,803 68,529
Investments held-to-maturity 4,747 20,292 58,020 22,674 105,733
Loans, net of unearned discount (1) 183,703 46,434 79,282 16,048 325,467
--------- --------- --------- --------- ---------
Total interest-earning assets 221,875 77,688 171,841 45,525 516,929
--------- --------- --------- --------- ---------
Cumulative interest-earning assets 221,875 299,563 471,404 516,929 516,929
--------- --------- --------- --------- ---------
Interest-bearing liabilities:
Interest-bearing demand deposits 48,694 27,825 34,781 27,825 139,125
Savings deposits 20,577 11,758 14,697 11,758 58,790
Time deposits under $100,000 38,925 71,835 59,276 -- 170,036
Time deposits $100,000 and over 22,376 28,847 3,452 -- 54,675
Short-term borrowings 4,260 -- -- -- 4,260
--------- --------- --------- --------- ---------
Total interest-bearing liabilities 134,832 140,265 112,206 39,583 426,886
--------- --------- --------- --------- ---------
Cumulative interest-bearing liabilities 134,832 275,097 387,303 426,886 426,886
--------- --------- --------- --------- ---------
Gap analysis:
Interest sensitivity gap $ 87,043 $ (62,577) $ 59,635 $ 5,942 $ 90,043
========= ========= ========= ========= =========
Cumulative interest
sensitivity gap $ 87,043 $ 24,466 $ 84,101 $ 90,043 $ 90,043
========= ========= ========= ========= =========
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.65x 1.09x 1.22x 1.21x 1.21x
========= ========= ========= ========= =========
</TABLE>
(1) Nonaccrual loans are reported in the "Over 1 year through 5 years" column.
11
<PAGE> 12
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 17.83%, 17.38% and 18.26% as of March 31, 1998,
December 31, 1997, and March 31, 1997, respectively, which included Tier I
capital ratios of 16.57%, 16.12%, and 17.01%, 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 10.41%, 10.34%, and 10.28% at March 31, 1998, December 31, 1997, and
March 31, 1997, respectively.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $1,638,000 for the three months ended March 31, 1998
compared to $1,498,000 for the three months ended March 31, 1997. This increase
was mainly due to a $404,000 increase in net interest income. The first
quarters' earnings result in basic earnings per common share of $0.60 and $0.55
in 1998 and 1997, respectively, a return on average assets of 1.19% and 1.14% in
1998 and 1997, respectively, and a return on average shareholders' equity of
11.45% and 11.22% in 1998 and 1997, 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 $400,000 in the
first three months of 1998 when compared to the first three months of 1997. The
increase in net interest income was the result of a combination of an increase
in average earning assets, and an increase in the net interest margin. The major
factor contributing to both increases was the loan portfolio. The average
balance of loans outstanding increased $27,223,000 or 9.1%, while the average
rate earned on the portfolio increased by nine basis points to 8.89%.
12
<PAGE> 13
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,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
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) 325,224 $ 7,224 8.89% $298,001 $ 6,553 8.80%
Investments in debt securities:
Taxable(4) 150,417 2,249 5.98 163,833 2,443 5.96
Exempt from Federal income tax (3) (4) 23,633 492 8.33 22,233 471 8.47
Short-term investments 20,438 270 5.28 11,771 153 5.20
-------- ------- -------- -------
Total interest-earning assets/interest
income/overall yield (3) 519,712 10,235 7.88 495,838 9,620 7.76
------- ==== ------- ====
Allowance for possible loan losses (6,079) (5,855)
Cash and due from banks 15,281 14,295
Other assets 22,315 20,326
-------- --------
TOTAL ASSETS $551,229 $524,604
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings deposits $198,194 1,552 3.13% $186,137 1,410 3.03%
Time deposits 227,884 3,029 5.32 224,452 2,941 5.24
Short-term borrowings 5,095 56 4.40 3,180 34 4.28
Debt of employee stock ownership plan -- -- -- 1,795 37 8.25
-------- ------- -------- -------
Total interest-bearing liabilities/interest-
expense/overall rate 431,173 4,637 4.30 415,564 4,422 4.26
------- ==== ------- ====
Non-interest-bearing demand deposits 56,475 51,379
Other liabilities 6,352 4,235
Shareholders' equity 57,229 53,426
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $551,229 $524,604
======== ========
NET INTEREST INCOME $ 5,598 $ 5,198
======= =======
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING
ASSETS 4.31% 4.19%
==== ====
</TABLE>
(1) Interest income includes loan origination fees.
(2) Average balance includes nonaccrual loans.
(3) Interest yields are presented on a tax-equivalent basis.
(4) Includes investments available-for-sale.
13
<PAGE> 14
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 1998. 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 increased $44,000 when comparing the first quarter of 1998 to
the first quarter of 1997 largely due to an increase in trust department income.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1998 increased $200,000 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
employee benefits expense was due, in part, to normal pay increases, as well
compensation expense related to the Company's Employee Stock Ownership Plan. The
increase in other noninterest expense was largely due to an increase in
advertising expense. These increases were partially offset by a decrease in
occupancy and equipment expense.
INCOME TAXES
Federal income tax expense for the first three months of 1998 was $639,000
compared to $531,000 in the first three months of 1997. The effective tax rate
increased to 28.06% in 1998 from 26.17% in 1997 This increase was primarily the
result of an increase in taxable interest income.
EFFECT OF NEW ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosures about Segments of an Enterprise on Related Information
(SFAS 131). SFAS 131 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
Additionally, SFAS 131 establishes standards for related disclosures about
products and services, geographical areas, and major customers superseding SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise. The Company
does not believe expanded disclosure information will be required to be included
in its consolidated financial statements beginning in 1998.
14
<PAGE> 15
Item 2. (continued)
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 - 1998 $37.75 $34.25 $37.75 $21.33 176.98% $ 0.20
4th Quarter - 1997 35.50 33.25 34.50 20.90 165.07 0.19
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
</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, 1998. 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
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.
----------------------------------------------
May 13, 1998 /s/ Thomas M. Teschner
- ------------ ----------------------------------------------
Thomas M. Teschner
President
(Principal Executive Officer)
May 13, 1998 /s/ Joseph W. Pope
- ------------ ----------------------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller, and Principal
Accounting Officer)
16
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,046
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,529
<INVESTMENTS-CARRYING> 105,733
<INVESTMENTS-MARKET> 106,994
<LOANS> 325,467
<ALLOWANCE> 6,058
<TOTAL-ASSETS> 548,243
<DEPOSITS> 480,899
<SHORT-TERM> 4,260
<LIABILITIES-OTHER> 5,371
<LONG-TERM> 0
0
0
<COMMON> 2,859
<OTHER-SE> 54,854
<TOTAL-LIABILITIES-AND-EQUITY> 57,713
<INTEREST-LOAN> 7,176
<INTEREST-INVEST> 2,574
<INTEREST-OTHER> 270
<INTEREST-TOTAL> 10,020
<INTEREST-DEPOSIT> 4,581
<INTEREST-EXPENSE> 4,637
<INTEREST-INCOME-NET> 5,383
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,817
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 2,277
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,638
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
<YIELD-ACTUAL> 4.31
<LOANS-NON> 2,957
<LOANS-PAST> 255
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,120
<CHARGE-OFFS> 171
<RECOVERIES> 94
<ALLOWANCE-CLOSE> 6,058
<ALLOWANCE-DOMESTIC> 6,058
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
