<PAGE> 1
SOUTHSIDE BANCSHARES CORP.
3606 GRAVOIS AVENUE
ST. LOUIS, MISSOURI 63116
March , 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: SOUTHSIDE BANCSHARES CORP.
ANNUAL REPORT ON FORM 10-K
COMMISSION FILE NO. 0-10849
Ladies and Gentlemen:
On behalf of Southside Bancshares Corp. (the "Company"), a Missouri
corporation, and pursuant to Item 101(a)(1)(iii) of Regulation S-T promulgated
under the Securities Exchange Act of 1934, as amended, enclosed herewith for
filing is the Company's Annual Report on Form 10-K, with exhibits, for its
fiscal year ended December 31, 1997.
The audited financial statements included in the Annual Report to
Shareholders reflect that, effective December 31, 1997, the Company adopted SFAS
No. 128, Earnings Per Share.
If you have any questions with respect to these materials, please call
the undersigned at (314) 577-6628.
Sincerely,
/s/Joseph Pope
Joseph Pope
Attachment
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the transition period from __________ to __________
Commission File Number 0-10849
SOUTHSIDE BANCSHARES CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S><C>
MISSOURI 43-1262037
- -------------------------------------------------------------- -----------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
3606 GRAVOIS AVENUE, ST. LOUIS, MISSOURI 63116
- -----------------------------------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (314) 776-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of Class)
------------------------------
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by references in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 9, 1998, the aggregate market value, computed by the average
bid and asked prices, of the voting stock held by non-affiliates of the
Registrant was approximately $44,801,161.25.
At March 9, 1998, the number of shares outstanding of the Registrant's
common stock, $1.00 par value, was 2,792,670.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1997 (Part I and Part II); and
(2) Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled for April 23, 1998 (Part III).
<PAGE> 3
PART I
ITEM 1. BUSINESS
(a) General
Southside Bancshares Corp. (the "Registrant" or "Southside") was
incorporated under the laws of the State of Missouri on January 25, 1982.
Southside became a registered bank holding company on January 3, 1983, when
South Side National Bank in St. Louis and a wholly-owned subsidiary of the
Registrant were merged on that date. The wholly-owned subsidiary of the
Registrant now continues banking operations under the name "South Side National
Bank in St. Louis." Prior to such merger, the Registrant was not actively
involved in any banking operations. Southside's principal office is located at
3606 Gravois Avenue, St. Louis, Missouri 63116.
Southside, through its subsidiary banks, is primarily engaged in
commercial banking and providing trust services. The Registrant and its
subsidiaries had, at December 31, 1997, consolidated total assets of
approximately $550 million. The following table shows the year of acquisition,
total assets, total loans and total deposits at December 31, 1997, of each of
Southside's wholly-owned subsidiary banks, all of which are located in Missouri.
<TABLE>
<CAPTION>
(in thousands)
Year of -------------------------------------------------------------------
Bank Acquisition Total Assets Total Loans Total Deposits
---- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
South Side National Bank
in St. Louis 1983 $353,316 $197,175 $309,297
State Bank of Jefferson County 1983 $ 57,683 $ 41,377 $ 51,533
Bank of Ste. Genevieve 1985 $ 84,805 $ 55,005 $ 74,627
The Bank of St. Charles
County 1986 $ 54,120 $ 34,461 $ 49,311
</TABLE>
The Registrant's subsidiary banks, which operated 13 banking offices in
Missouri during 1997, are engaged in the general banking business of
accepting funds for deposit, making loans, renting safe deposit boxes and
performing such other banking services as are usual and customary in banks of
similar size and character. All of the subsidiary banks offer real estate,
commercial and consumer loans. Customers of all subsidiary banks are offered
regular checking, interest-bearing checking, money market, savings,
certificates of deposit and IRA accounts. South Side National Bank in St.
Louis ("SSNB"), State Bank of Jefferson County and The Bank of St. Charles
County also provide Honor and CIRRUS 24-hour automated teller machines. Bank
of Ste. Genevieve has two 24-hour banking machines on the Shazam and CIRRUS
automated teller networks. SSNB also provides a 24-hour automated teller
machine (ATM) at its Customer-Bank Communications Terminal branch in St.
Anthony's Medical Center located at 10010 Kennerly Road, St. Louis County,
Missouri 63128.
Customers of all of the subsidiary banks are also offered the services
of the trust department of SSNB. At December 31, 1997, the combined market value
of fiduciary and custodial assets under management of the trust department was
approximately $307 million, which are not included in the consolidated assets of
the Registrant as they do not represent assets of the Registrant.
The responsibility for the management of the subsidiary banks remains
with the officers and directors of the respective banks. Southside provides the
subsidiary banks with assistance and service in auditing, record keeping, tax
planning, trust operations, new business development, lending, regulatory
compliance and human resources management.
Southside has nine officers. Southside utilizes, to the extent
necessary, the officers, employees and services of its banking subsidiaries. The
total number of full and part-time employees of the Registrant and its
wholly-owned subsidiaries was 220 and 25, respectively, on December 31, 1997.
The information on page 4 and pages 47-50 of the Southside Bancshares
Corp. 1997 Annual Report is incorporated herein by reference.
<PAGE> 4
(b) Supervision and Regulation
Southside is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and, as such, is subject
to regulation, supervision and examination by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). Registered bank holding
companies are required to file an annual report with the Federal Reserve Board
and to provide the Federal Reserve Board with such additional information as the
Federal Reserve Board may require pursuant to the BHCA.
The BHCA requires that bank holding companies obtain prior approval
from the Federal Reserve Board before (1) acquiring (except in certain limited
circumstances) direct or indirect ownership or control of more than 5% of the
voting shares of any bank or bank holding company, (2) acquiring all or
substantially all of the assets of any bank or bank holding company, or (3)
merging or consolidating with any other bank holding company. In determining
whether to approve a proposed acquisition, merger or consolidation, the Federal
Reserve Board is required to take into consideration the financial and
managerial resources and future prospects of the company or companies and the
banks concerned, and the convenience and needs of the community to be served.
Missouri law provides that a bank holding company may not obtain
control of any bank or depository financial institution if as a result of the
acquisition, the total deposits in such bank or institution together with the
total deposits of all banks and depository financial institutions located in the
State of Missouri controlled by the bank holding company would exceed 13% of the
total deposits of all depository financial institutions in the state, including
banks, thrifts and credit unions. In computing the total deposits in all banks
controlled by the bank holding company and the bank which the holding company
seeks to acquire, certificates of deposit in the face amount of $100,000 or
more, deposits from sources outside the United States and deposits of banks
other than banks controlled by the bank holding company are to be deducted.
The BHCA further prohibits a bank holding company, with certain
exceptions, from engaging in and from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company engaged in a
business other than that of banking, managing and controlling banks, or
furnishing services to its affiliated banks. An exception to this prohibition
provides that a bank holding company may engage in, and may own shares of
companies engaged in, certain businesses which the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto. The Federal Reserve Board has adopted regulations specifying areas of
activity which it regards as so closely related to banking or the managing of
banks as to be permissible for bank holding companies under the law, subject to
Board approval in individual cases. The Registrant is not engaged in any such
non-banking activities.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was enacted. As of September 29, 1995, bank holding
companies have the right to expand, by acquiring existing banks, into all
states, even those which had theretofore restricted entry, subject to state
deposit caps and a 10% nationwide deposit cap. This legislation also provides
that, subject to future action by individual states, a holding company has the
right, commencing on June 1, 1997, to convert the banks which it owns in
different states to branches of a single bank. States were permitted to "opt
out" of this full interstate branching provision prior to the effective date,
but could not "opt out" of the law allowing bank holding companies from other
states to enter such states. Missouri, in which all of the Registrant's
subsidiary banks are located, did not "opt out" of the interstate branching
provisions of this legislation.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its other subsidiaries, on investments in the
stock or other securities thereof, and on the taking of such stock or securities
as collateral for loans to any borrower. Further, under the BHCA and regulations
of the Federal Reserve Board, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property, or furnishing of services.
The primary subsidiary of the Registrant, South Side National Bank in
St. Louis, is a national bank and, as such, its primary bank regulatory
authority is the Office of the Comptroller of the Currency. A national bank is
also subject to regulations of the Federal Reserve Board and the Federal Deposit
Insurance Corporation. Banks organized under state law which are members of the
Federal Reserve System are regulated and examined primarily by the Federal
Reserve Board and state banking authorities, while banks organized under state
law which are not members of the Federal Reserve System are regulated and
examined primarily by the Federal Deposit Insurance Corporation and state
banking authorities. The Bank of Ste. Genevieve is a state-chartered bank which
is a member of the Federal Reserve System, while State Bank of Jefferson County
and The Bank
2
<PAGE> 5
of St. Charles County are state-chartered banks which are not members of the
Federal Reserve System. Regulation by the federal and state banking authorities
is designed to protect depositors rather than shareholders.
Subsidiary bank dividends are the principal source of revenue to the
Registrant although management fees may be charged to cover services rendered to
such subsidiary banks. The ability of each subsidiary bank to pay such dividends
to Southside is subject to limitations established by various state and federal
laws and regulations. Banks organized under either federal or state laws are
limited in the amount of dividends they may declare, depending upon the amount
of their capital and surplus, and in certain instances must obtain regulatory
approval before declaring dividends. Under the National Banking Act, until a
national bank's surplus equals or exceeds the amount of its capital, no dividend
may be declared unless at least one-tenth of the national bank's net profit
earned since declaration of the last dividend has been transferred to surplus.
Under federal law, regulatory approval is required for any dividend by a
national bank or a state-chartered bank which is a member of the Federal Reserve
System if the total of all dividends declared by the bank in any calendar year
would exceed the total of its net income for that year combined with its
retained net income for the preceding two years, less any required transfers to
surplus. Under Missouri law, a state-chartered bank which is not a member of the
Federal Reserve System whose surplus account for each dividend period does not
equal at least 40% of the amount of its capital stock is required to transfer to
its surplus account 10% of its net income for such dividend period. Retained
earnings in excess of any such required transfer to surplus are available for
dividends. In addition, sound banking practices require the maintenance of
adequate levels of capital. Federal regulatory authorities have adopted
standards for the maintenance of capital by banks, and adherence to such
standards may further limit the ability of banks to pay dividends.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies the following capital standards for
depository institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure, and critically
undercapitalized if it fails to meet any critical capital level set forth in the
regulations. FDICIA requires a bank that is determined to be undercapitalized to
submit a capital restoration plan, and the bank's holding company must guarantee
that the bank will meet its capital plan, subject to certain limitations. FDICIA
also prohibits banks from making any capital distribution or paying any
management fee if the bank would thereafter be undercapitalized.
FDICIA grants the FDIC authority to impose special assessments on
insured depository institutions to repay FDIC borrowings from the United States
Treasury or other sources and to establish semiannual assessment rates on Bank
Insurance Fund ("BIF") member banks so as to maintain the BIF at the designated
reserve ratio defined in FDICIA. FDICIA also required the FDIC to implement a
risk-based insurance assessment system pursuant to which the premiums paid by a
depository institution are based on the probability that the BIF will incur a
loss in respect of such institution. The FDIC has adopted a deposit insurance
assessment system that places each insured institution in one of nine risk
categories based on the level of its capital, evaluation of its risks by its
primary state or federal supervisor, statistical analysis and other information.
The FDIC has recently adopted an amendment to the BIF risk-based assessment
schedule which effectively eliminated deposit insurance assessments for most
commercial banks and other depository institutions with deposits insured by the
BIF. Under the FDIC amendment, the assessment rates for BIF-insured institutions
range from 0.27% of insured deposits for the most financially troubled BIF
members to 0% of deposits for most well-capitalized institutions, including over
90% of BIF-insured institutions.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") was signed into law on September 30, 1996. Among other matters,
EGRPRA streamlined the non-banking activities application process for
well-capitalized and well-managed bank holding companies. Under EGRPRA,
qualified bank holding companies may commence a regulatory approved non-banking
activity without prior notice to the Federal Reserve Board. Written notice is
required within 10 days after commencing the activity. Under EGRPRA, the prior
notice period is reduced to 12 days in the event of any non-banking acquisition
or share purchase, assuming the size of the acquisition does not exceed 10% of
risk-weighted assets of the acquiring bank holding company and the consideration
does not exceed 15% of Tier I capital. The foregoing prior notice requirement
also applies to commencing non-banking activity de novo which has been
previously approved by order of the Federal Reserve Board, but not yet
implemented by regulations. The Federal Reserve Board has adopted comprehensive
amendments to its regulations under the BHCA that implement the foregoing
provisions of the EGRPRA (including provisions allowing the 12-day prior notice
for acquisitions that exceed the 10% of risk-weighted assets limit, under
certain circumstances) and that also streamline the application/notice process
for acquisitions of banks and bank holding companies and eliminate regulatory
provisions
3
<PAGE> 6
the Federal Reserve Board considered unnecessary. EGRPRA also provided for the
recapitalization of the Savings Association Insurance Fund in order to bring
that fund into parity with the BIF.
Because of concerns relating to competitiveness and the safety and
soundness of the banking industry, Congress is considering a number of
wide-ranging proposals for altering the structure, regulation and competitive
relationships of the nation's financial institutions. Within this legislation
are proposals to alter the statutory separation of commercial and investment
banking, to allow a wider range of financial services companies to acquire and
operate commercial banks and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which Southside's
business may be affected thereby.
The references in this section to various aspects of supervision and
regulation are brief summaries which do not purport to be complete and which are
qualified in their entirety by reference to applicable laws, rules and
regulations. Any change in applicable laws or regulations may have a material
effect on the business and prospects of Southside. The operations of Southside
may be affected by legislative changes and by the policies of various regulatory
authorities. Southside is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
controls or new federal or state legislation may have in the future.
The information contained in note 12 of the Notes to Consolidated
Financial Statements on pages 42 and 43 of the Southside Bancshares Corp. 1997
Annual Report is incorporated herein by reference.
(c) Competition
The Registrant and its subsidiaries encounter substantial competition
in all aspects of their banking activities. New banks may be established in the
market areas of the subsidiary banks, and the location of existing banks may be
moved on occasion. In addition, competing banks and competing bank holding
companies are continuing to establish separate banking facilities or branches
which have been permitted under Missouri law since 1972. Any such new or
relocated banks and facilities may have a tendency to increase the competition
faced by the subsidiary banks. Missouri law permits unlimited, state-wide
branching for both national and state-chartered banks, subject to certain
criteria.
As lenders, the subsidiary banks compete not only with other banks but
also with savings and loans associations, credit unions, finance companies,
insurance companies and other non-banking financial institutions that offer
credit. The subsidiary banks also compete for savings and time deposits with
other banks, savings and loan associations, credit unions, money market and
mutual funds, and issuers of commercial paper, securities and various forms of
fixed and variable income investments. The principal competitive factors in the
markets for deposits and loans are interest rates paid and interest rates
charged, along with related services; accessibility to customers is also a
substantial factor.
(d) Monetary Policy and Economic Conditions
The principal sources of funds to banks and bank holding companies are
deposits, stockholders' equity and borrowed funds. Stockholders' equity is
represented by common stock, surplus and retained earnings, as well as current
net income. Borrowed funds include short-, intermediate- and long-term debt, as
well as Federal funds purchased and securities sold under agreements to
repurchase. The availability of these various sources of funds and other
potential sources, such as preferred stock, convertible securities and
commercial paper, and the extent to which they are utilized, depends on many
factors, the most important of which are the monetary policies of the Federal
Reserve Board and the relative costs of different types of funds.
An important function of the Federal Reserve Board is to regulate the
national supply of bank credit. Among the instruments of monetary policy used by
the Federal Reserve Board to implement these objectives are open market
operations in United States Government Securities, changes in the discount rate
on bank borrowings and changes in reserve requirements against bank deposits.
The foregoing means are used in varying combinations to influence overall growth
of bank loans. Investments and deposits may also affect interest rates charged
on loans and paid for deposits. The availability and cost of various sources of
funds are also affected by fiscal policies of the United States Government.
The monetary policies of the Federal Reserve Board and the fiscal
policies of the United States Government have had a significant effect on
operating results of commercial banks in the past and are expected to continue
to do so in the future. No
4
<PAGE> 7
prediction can be made as to future changes in interest rates, credit
availability, deposit levels, loan demand or the overall performance of banks
generally and the subsidiaries of Southside in particular.
(e) Statistical Information
The following selected statistical information relative to Southside
and its subsidiaries should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations, the Consolidated
Financial Statements and Notes to Consolidated Financial Statements included in
the Southside Bancshares Corp. 1997 Annual Report, incorporated herein by
reference.
(f) Forward-Looking Statements
Statements contained in this Report and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended). There can be no assurance, in light of these risks and uncertainties,
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:
- Credit risk: While the Company has had excellent credit
quality in recent years, approximately 51% of its loans at
December 31, 1997 were in commercial (including commercial
real estate), financial, and agricultural loans. Changes in
local economic conditions could adversely affect credit
quality in the Company's local business loan portfolio.
- Interest rate risk: Although the Company actively manages its
interest rate sensitivity, such management is not an exact
science. Rapid increases or decreases in interest rates could
adversely impact the Company's net interest margin if changes
in its cost of funds do not correspond to the changes in
income yields.
- Competition: The Company's activities involve competition with
other banks as well as other financial institutions and
enterprises. Also, the financial service markets have and
likely will continue to experience substantial changes, which
could significantly change the Company's competitive
environment in the future.
- Legislative and regulatory environment: The Company operates
in a rapidly changing legislative and regulatory environment.
It cannot be predicted how or to what extent future
developments in these areas will affect the Company. These
developments could negatively impact the Company through
increased operating expenses for compliance with new laws and
regulations, restricted access to new products and markets,
reduced barriers for new entrants in the markets in which the
Company competes, or in other ways.
- General business and economic trends: These factors, including
the impact of inflation levels, influence the Company's
results in numerous ways, including operating expense levels,
deposit and loan activity, and availability of trained
individuals needed for future growth.
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.
5
<PAGE> 8
SELECTED STATISTICAL INFORMATION
I. Loan Portfolio
A. Types of Loans
The following table shows the classification of loans by major category
at December 31 for the years shown.
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $69,168 $62,016 $ 62,214 $ 69,219 $ 73,566
Real estate-commercial 98,759 82,045 88,321 82,807 86,258
Real estate-construction 30,836 26,067 15,510 11,019 9,540
Real estate-residential 92,028 96,039 102,418 108,134 110,806
Consumer 23,627 17,304 17,626 18,334 18,849
Industrial revenue bonds 5,517 6,373 7,789 9,311 8,544
Other loans 6,502 4,619 9,946 2,573 668
-------- -------- -------- -------- --------
TOTAL LOANS $326,437 $294,463 $303,824 $301,397 $308,231
======== ======== ======== ======== ========
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest
Rates
The following table shows the remaining maturities of selected loan
categories at December 31, 1997.
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------------------------------
One year Over one up Over
or less* to 5 years 5 years Total
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $43,927 $21,432 $3,809 $ 69,168
Real estate-construction 29,441 1,395 - 30,836
Other loans 6,487 15 - 6,502
------- ------- ------ --------
TOTAL $79,855 $22,842 $3,809 $106,506
======= ======= ====== ========
</TABLE>
* Demand loans, loans having no stated schedule of repayments and no
stated maturity, and overdrafts are reported as due "One year or less."
The following table shows the amount of loans above having maturities over one
year which have predetermined interest rates, and the amount which have floating
or adjustable interest rates at December 31, 1997 (in thousands).
Loans with predetermined interest rates $21,313
Loans with floating or adjustable interest rates 5,338
-------
$26,651
=======
II. Summary of Loan Loss Experience
The information under the caption Allowance for Loan Losses and Risk
Elements on pages 8 through 10 of the Southside Bancshares Corp. 1997 Annual
Report is incorporated herein by reference.
6
<PAGE> 9
The following table analyzes the loan loss experience of the Registrant
for the periods indicated:
<TABLE>
<CAPTION>
(dollars in thousands)
Years Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net of
unearned discount $311,266 $295,683 $297,480 $294,749 $330,869
======== ======== ======== ======== ========
Allowance at beginning of year $ 5,602 $ 5,635 $ 7,144 $ 8,334 $ 9,994
======== ======== ======== ======== ========
Loans charged off:
Commercial, financial and
agricultural 139 878 1,606 821 3,087
Real estate - construction - - - - -
Real estate - residential 77 93 294 1,302 1,884
Consumer 151 248 274 195 528
-------- -------- -------- -------- --------
Total loans charged off 367 1,219 2,174 2,318 5,499
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and
agricultural 687 869 661 276 615
Real estate - construction - - - - -
Real estate - mortgage 62 171 186 568 531
Consumer 76 86 75 91 85
-------- -------- -------- -------- --------
Total recoveries 825 1,126 922 935 1,231
-------- -------- -------- -------- --------
Net loans (recovered) charged off (458) 93 1,252 1,383 4,268
-------- -------- -------- -------- --------
Provisions charged to
operating expense 60 60 70 193 2,608
-------- -------- -------- -------- --------
Adjustment due to sale of
Bay-Hermann-Berger Bank - - (327) - -
-------- -------- -------- -------- --------
Allowance at end of year $ 6,120 $ 5,602 $ 5,635 $ 7,144 $ 8,334
======== ======== ======== ======== ========
Ratio of net charge-offs during
year to average loans outstanding * 0.03% 0.42% 0.47% 1.29%
======== ======== ======== ========
</TABLE>
* Ratio is not applicable for 1997, as recoveries exceeded charge-offs for the
year.
7
<PAGE> 10
The following table sets forth at the end of each reported period, a
breakdown of the allowance for possible loan losses by major categories of loans
and the percentage of loans in each category to total loans at the dates
indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
(dollars in thousands)
---------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category To Category To Category To
Allowance Total Loans Allowance Total Loans Allowance Total Loans
--------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural $3,920 23.0% $3,902 23.2% $3,935 23.0%
Real estate -
construction 500 9.4 300 8.9% 300 5.1%
Real estate -
mortgage 1,000 58.4 1,000 60.5% 1,000 62.8%
Consumer loans to
individuals 500 7.2 200 5.8% 200 5.8%
Other loans
(Unallocated) 200 2.0% 200 1.6% 200 3.3%
------ ----- ------ ------ ------ -----
$6,120 100.0% $5,602 100.0% $5,635 100.0%
====== ===== ====== ====== ====== =====
<CAPTION>
--------------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category To Category To
Allowance Total Loans Allowance Total Loans
--------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Commercial,
financial and
agricultural $5,094 26.0% $5,984 26.6%
Real estate -
construction 300 3.7% 300 3.1%
Real estate -
mortgage 1,500 63.4% 1,500 63.9%
Consumer loans to
individuals 200 6.1% 500 6.2%
Other loans
(Unallocated) 50 0.8% 50 0.2%
------ ----- ------ -----
$7,144 100.0% $8,334 100.0%
====== ===== ====== =====
</TABLE>
8
<PAGE> 11
III. Investment Portfolio
The information contained in note 2 of the Notes to Consolidated
Financial Statements on pages 36 and 37 of the Southside Bancshares Corp. 1997
Annual Report is incorporated herein by reference. The following table
summarizes the carrying values and weighted average yields of investments in
debt securities by contractual maturity. Actual maturities will differ from
contractual maturities, because borrowers have the right to prepay obligations
with or without prepayment penalties. A maturity distribution for
mortgage-backed securities has not been prepared due to their accelerated
prepayment characteristics.
<TABLE>
<CAPTION>
(dollars in thousands)
DECEMBER 31, 1997
------------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD* VALUE YIELD*
----- ------ ----- ------
<S> <C> <C> <C> <C>
U.S. TREASURY SECURITIES AND OBLIGATIONS OF U.S.
GOVERNMENT AGENCIES AND CORPORATIONS:
Within 1 year $ 9,065 5.44% $20,020 5.70%
After 1 but within 5 years 15,472 6.89 47,109 6.12
After 5 but within 10 years 2,521 6.61 4,936 6.46
After 10 years -- -- -- --
------- -------
Total 27,058 6.37 72,065 6.03
======= ==== ======= ====
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS:
Within 1 year 304 7.20 1,872 6.48
After 1 but within 5 years -- -- 8,286 5.78
After 5 but within 10 years -- -- 11,562 5.28
After 10 years -- -- 1,824 5.19
------- -------
Total 304 7.20 23,544 5.55
======= ==== ======= ====
OTHER DEBT SECURITIES:
Within 1 year -- -- -- --
After 1 but within 5 years -- -- -- --
After 5 but within 10 years 100 6.29 -- --
After 10 years -- -- -- --
------- -------
Total 100 6.29 -- --
======= ==== ======= ====
TOTAL INVESTMENT SECURITIES:
Within 1 year 9,369 5.49 21,892 5.77
After 1 but within 5 years 15,472 6.89 55,395 6.07
After 5 but within 10 years 2,621 6.59 16,498 5.63
After 10 years -- -- 1,824 5.19
------- -------
Total 27,462 6.39 95,609 5.91
======= ==== ======= ====
OTHER SECURITIES - NO STATED MATURITY 1,475 6.80 -- --
======= ==== ======= ====
MORTGAGE-BACKED SECURITIES 44,523 6.28 4,070 6.90
======= ==== ======= ====
Total $73,460 6.33 $99,679 5.95
======= ==== ======= ====
</TABLE>
* The weighted average yield for each maturity range was calculated using the
yield on each security within that range, weighted by the amortized cost of
each security at December 31, 1997. The yields for obligations of states and
political subdivisions exempt from federal income taxes have been adjusted to
a fully tax-equivalent basis at a maximum tax rate of 34% for 1997, adjusted
for the disallowance of interest cost to carry nontaxable securities.
9
<PAGE> 12
ITEM 2. PROPERTIES
The Registrant owned the following physical properties as of December
31, 1997:
South Side National Bank in St. Louis, a subsidiary of the Registrant,
owns a nine-story banking and office building at 3606 Gravois Avenue in St.
Louis, Missouri 63116, and the adjacent drive-up facilities and three parking
lots. The Registrant and this subsidiary occupy all nine stories in the
building. This subsidiary of the Registrant owns the land and bank building
located at its branch facility at 10330 Gravois Road, St. Louis, Missouri
63126. This is a two story building and the lower level and a portion of the
main level are leased to tenants for an annual rental of approximately
$31,000. This subsidiary also owns the land and bank building at 9914 Kennerly
Road in St. Louis County upon which its South County branch is located. This
is a two-story building and the second floor is leased to tenants for an
annual rental of approximately $85,000. This subsidiary also owns the land and
bank buildings at 10385 West Florissant, Ferguson, Missouri 63136, 8440
Morganford Road, St. Louis County, Missouri 63123 and 3420 Iowa Street, St.
Louis, Missouri 63118. This subsidiary leases a branch facility at 4666
Lansdowne, St. Louis, Missouri 63116. In addition, the Registrant owns land at
4111 Telegraph Road in St. Louis County upon which it is currently
constructing a three-story banking facility.
State Bank of Jefferson County owns the land and a two-story building
at its main banking office at 224 S. Main Street, DeSoto, Missouri 63020. The
State Bank of Jefferson County also owns the land and a one-story building
housing its facility located at 2000 Rock Road, DeSoto, Missouri 63020. In
addition, State Bank of Jefferson County owns land in Herculaneum, Missouri,
which was purchased as the site of a third banking facility.
Bank of Ste. Genevieve owns the land, a one-story building and an
adjacent parking lot at its main banking office at Second and Market Streets,
Ste. Genevieve, Missouri 63670 and the land and one-story building at its
facility at 710 Parkwood Drive, Ste. Genevieve, Missouri 63670.
The Bank of St. Charles County owns the land and a two-story building
at its banking facility at 6004 Highway 94 South, St. Charles, Missouri 63304.
This subsidiary bank owns the land and a one-story building at its facility
located at 750 First Capitol Drive, St. Charles, Missouri 63301.
In the opinion of the Registrant's management, the physical properties
of the subsidiary banks are suitable and adequate and are being productively
utilized.
ITEM 3. LEGAL PROCEEDINGS
The information contained in note 14 of the Notes to Consolidated
Financial Statements on page 44 of the Southside Bancshares Corp. 1997 Annual
Report is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of the executive officers
of the Registrant and their business history for the past five years:
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE
COMPANY PRINCIPAL OCCUPATIONS OR EMPLOYMENT SINCE JANUARY 1, 1993
------------------------------- ---------------------------------------------------------
<S> <C>
Thomas M. Teschner (41) President and Chief Executive Officer, Southside Bancshares Corp.;
President and Chief Executive Officer President and Chief Executive Officer, South Side National Bank in
St. Louis.
Joseph W. Pope (32) Chief Financial Officer and Senior Vice President, Southside Bancshares
Senior Vice President and Corp. (Since April 1995); Vice President, South Side National Bank in
Chief Financial Officer St. Louis.
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The only class of the Registrant's common equity is common stock, $1.00
par value (the "Common Stock"). The number of shares of Common Stock of the
Registrant outstanding at March 9, 1998 was 2,792,670 shares, and the market
price for the Common Stock on March 9, 1998 was $35.375 bid; $36.00 asked.
The information on page 25 of the Southside Bancshares Corp. 1997
Annual Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information on page 5 of the Southside Bancshares Corp. 1997 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information on pages 6 through 26 of the Southside Bancshares Corp.
1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on pages 15 and 16 of the Southside Bancshares Corp.
1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages 27 through 46 of the Southside Bancshares
Corp. 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on pages 4 through 6 of the Southside Bancshares Corp.
Proxy Statement for the Annual Meeting of Shareholders scheduled for April 23,
1998 is incorporated herein by reference. The information on page 18 of the
Southside Bancshares Corp. Proxy Statement for the Annual Meeting of
Shareholders scheduled for April 23, 1998, with respect to compliance by the
Registrant's officers and directors with Section 16(a) of the Securities
Exchange Act of 1934, is incorporated herein by reference. The required
information regarding Southside's executive officers is contained in PART I in
the item captioned "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information on pages 10 through 14 of the Southside Bancshares
Corp. Proxy Statement for the Annual Meeting of Shareholders scheduled for
April 23, 1998 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information on pages 3 and 4 of the Southside Bancshares Corp.
Proxy Statement for the Annual Meeting of Shareholders scheduled for April 23,
1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 17 of the Southside Bancshares Corp. Proxy
Statement for the Annual Meeting of Shareholders scheduled for April 23, 1998,
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements of Southside and its consolidated
subsidiaries, and the accountants' report thereon are incorporated
herein by reference in Item 8.
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets -
December 31, 1997 and 1996
Consolidated Statements of Income -
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995
12
<PAGE> 15
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All other schedules are omitted because they are not applicable, not
required, or the information is included elsewhere in the
Consolidated Financial Statements or notes thereto.
3. Exhibits:
3(a) Restated Articles of Incorporation of the Registrant
filed as Exhibit 4(a) to the Registrant's
Registration Statement on Form S-8 on May 2, 1994,
incorporated herein by reference.
3(b) Restated Bylaws of the Registrant with amendments
through December 28, 1995 filed as Exhibit 4(b) to
the Registrant's Registration Statement on Form S-8
on January 31, 1996, incorporated herein by
reference.
4(a) Rights Agreement dated as of May 27, 1993 between
the Registrant and Boatmen's Trust Company filed as
Exhibits 1 and 2 to the Registrant's Registration
Statement on Form 8-A on May 27, 1993, incorporated
herein by reference.
10(a) Employment Agreement Dated April 27, 1995 between
Southside Bancshares Corp., South Side National Bank
in St. Louis and Thomas M. Teschner filed as Exhibit
10(b) to the Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1995,
incorporated herein by reference.
10(b) Southside Bancshares Corp. 1993 Non-Qualified Stock
Option Plan, filed as Exhibit 10(e) to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994, incorporated herein by
reference.
10(c) Deferred Compensation Agreement dated April 25, 1996
between Thomas M. Teschner and Southside Bancshares
Corp. filed as Exhibit 10(c) to the Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1996, incorporated herein by reference.
10(d) Southside Bancshares Corp. Deferred Compensation
Plan for Directors filed as Exhibit 10(d) to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1996, incorporated herein by
reference.
11 Computation of Net Income Per Common Share
incorporated by reference to Note 11 of the Notes to
the Consolidated Financial Statements.
13 Portions of the Annual Report to Shareholders of the
Registrant for the fiscal year ended December 31,
1997.
21 List of Subsidiaries.
23 Independent Auditors' Consent of KPMG Peat Marwick
LLP.
13
<PAGE> 16
27 Financial Data Schedule.
(b) Reports filed on Form 8-K:
The following reports on Form 8-K were filed for the three months
ended December 31, 1997:
None.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Thomas M. Teschner
------------------------------------
Thomas M. Teschner
President and Chief Executive
Officer (Principal Executive
Officer)
March 26, 1998
By /s/ Joseph W. Pope
------------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer, Controller and
Principal Accounting Officer)
March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Howard F. Etling /s/ Joseph W. Beetz
- -------------------------------- ----------------------------------
Howard F. Etling Joseph W. Beetz
Chairman of the Board Director
Date: March 26, 1998 Date: March 26, 1998
/s/ Ralph Crancer, Jr. /s/ Douglas P. Helein
- -------------------------------- ----------------------------------
Ralph Crancer, Jr. Douglas P. Helein
Director Director
Date: March 26, 1998 Date: March 26, 1998
/s/ Thomas M. Teschner /s/ Earle J. Kennedy, Jr.
- -------------------------------- ----------------------------------
Thomas M. Teschner Earle J. Kennedy, Jr.
President, Chief Executive Director
Officer and Director
Date: March 26, 1998 Date: March 26, 1998
<PAGE> 18
/s/ Norville K. McClain /s/ Richard G. Schroeder, Sr.
- -------------------------------- ----------------------------------
Norville K. McClain Richard G. Schroeder, Sr.
Director Director
Date: March 26, 1998 Date: March 26, 1998
/s/ Daniel J. Queen
- --------------------------------
Daniel J. Queen
Director
Date: March 26, 1998
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
REGULATION S-K REPORT
EXHIBIT PAGE
NO. DESCRIPTION -NO.
------- ----------- ----
<S> <C> <C>
3(i) Restated Articles of Incorporation of the Registrant *
filed as Exhibit 4(a) to the * Registrant's
Registration Statement on Form S-8 on May 2, 1994 (No.
33-78454), incorporated herein by reference.
3(ii) Restated Bylaws of the Registrant with amendments *
through December 28, 1995 filed * as Exhibit 4(b) to
the Registrant's Registration Statement (No.
333-00579) on Form S-8 on January 31, 1996,
incorporated herein by reference.
4(a) Rights Agreement dated as of May 27, 1993 between *
Registrant and Boatmen's Trust * Company filed as
Exhibits 1 and 2 to Registrant's Registration
Statement on Form 8-A on June 1, 1993 (No. 0-10849),
incorporated herein by reference.
10(a) Employment Agreement Dated April 27, 1995 between *
Registrant, South Side National Bank in St. Louis and
Thomas M. Teschner filed as Exhibit 10(b) to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1995, incorporated herein by
reference.
10(b) Southside Bancshares Corp. 1993 Non-Qualified Stock *
Option Plan, filed as Exhibit 10(e) to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994, incorporated herein by
reference.
10(c) Deferred Compensation Agreement dated April 25, 1996 *
between Thomas M. Teschner and Southside Bancshares
Corp. filed as Exhibit 10(c) to the Registrant's
Report on Form 10-K for the fiscal year ended December
31, 1996, incorporated herein by reference.
10(d) Southside Bancshares Corp. Deferred Compensation Plan *
for Directors filed as Exhibit 10(d) to the
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1996, incorporated herein by
reference.
11 Computation of Net Income Per Common Share *
incorporated by reference to Note 11 of the Notes to
the Consolidated Financial Statements.
13 Portions of the Annual Report to Shareholders of the
Registrant for the fiscal year ended December 31,
1997, filed herewith.
21 List of Subsidiaries, filed herewith.
23 Independent Auditors' Consent of KPMG Peat Marwick
LLP, filed herewith.
27 Financial Data Schedule, filed herewith.
* Incorporated by reference.
</TABLE>
<PAGE> 1
SOUTHSIDE BANCSHARES CORP.
Annual Report
December 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE> 2
SOUTHSIDE BANCSHARES CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Letter to Our Shareholders ...................................................... 2
Southside Bancshares Corp. - Organization ....................................... 4
Financial Highlights ............................................................ 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 6
Statement of Management's Responsibility for Financial Statements ............... 27
Independent Auditors' Report .................................................... 28
Consolidated Financial Statements of Southside Bancshares Corp. and Subsidiaries:
Balance Sheets ............................................................... 29
Statements of Income ......................................................... 30
Statements of Shareholders' Equity ........................................... 31
Statements of Cash Flows ..................................................... 32
Notes to Consolidated Financial Statements ................................... 33
Southside Bancshares Corp. and Subsidiaries - Directors and Officers:
Southside Bancshares Corp. ................................................... 47
South Side National Bank in St. Louis ........................................ 48
State Bank of Jefferson County ............................................... 49
Bank of Ste. Genevieve ....................................................... 49
The Bank of St. Charles County ............................................... 50
</TABLE>
1
<PAGE> 3
LETTER TO OUR SHAREHOLDERS
Southside Bancshares Corp. and Subsidiaries
Dear Shareholders:
This past year was marked by several significant milestones: the Company
achieved its fourth consecutive increase in core annual net earnings, which
also represent a new record level for the Company; the quarterly dividend was
increased each quarter during 1997; and, 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 lead subsidiary
bank, South Side National Bank in St. Louis. This acquisition is expected to
be completed in the third quarter of 1998 and represents the Company's first
acquisition since 1990.
The Company earned $6,302,000 or $2.30 per common share in 1997, compared
to $6,158,000 or $2.27 per share in 1996, which represents an increase of
$144,000 or approximately 2% during 1997. This increase in net earnings was
largely attributable to an increase in net interest income. The 1997 earnings
resulted in a return on average assets (ROA) of 1.18% and a return on average
shareholders' equity (ROE) of 11.44%, compared to an ROA of 1.20% and an ROE of
12.27% in 1996. The slight decline in ROA during 1997 was largely the result
of growth at the Company's subsidiary banks, as average assets increased
$20,819,000 or 4%. Due to four straight years of strong earnings, the ROE also
declined slightly. Management and the Board of Directors has taken steps to
utilize this excess capital during the year, including the aforementioned
acquisition of PSB, increased dividends to shareholders, and the purchase of
treasury stock.
With the increase in the March 15, 1998 dividend to $.20 per common share,
the quarterly dividend has been raised a total of 25% over the past four
quarters, and over the past two years, the quarterly dividend rate doubled from
$.10 in March 1996 to its present level. We believe these increases in the
dividend level demonstrate our commitment to increasing shareholder
value and our confidence in the Company's ability to sustain current levels of
profitability.
We are very excited about the potential of the PSB acquisition. With the
acquisition we will acquire facilities in two markets, which the Company views
as a natural fit, one in St. Louis Hills in the City of St. Louis and the other
in West St. Louis County. PSB also has a very successful residential mortgage
loan origination business, which will give the Company an opportunity to enter
this highly competitive area with an experienced staff, a solid referral
network, and instant credibility with investors. Finally, the acquisition
gives PSB's employees and customers access to additional products and resources
not previously available to them, including commercial and construction loan
products, an ATM and debit card network, increased lending capacity, and
additional branch locations.
Total assets of the Company increased by approximately $22,000,000 or 4%
during 1997, and total assets have increased by approximately $37,000,000 over
the past two years. One of the components of our strategic business plan was
to achieve growth without negatively impacting earnings or asset quality. We
will continue to evaluate opportunities for growth in the future as means of
better utilizing our existing capital structure; however, we do not intend to
sacrifice earnings or asset quality to accomplish this objective.
Total nonperforming assets increased to $4,518,000, as of December 31,
1997, from $2,043,000, in 1996. This increase was primarily due to one
commercial borrowing relationship, which is currently undergoing a
reorganization through the bankruptcy courts. Even with the increase,
nonperforming assets represent only .82% of total assets, which is comparable
to our peers in the industry.
2
<PAGE> 4
LETTER TO OUR SHAREHOLDERS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Much has been written about the year 2000 and its potential impact on the
business community. We began reviewing and testing our computer hardware,
computer software, and other affected areas during 1997. Based on the results
of the preliminary procedures, management does not believe year 2000 will pose
any major problems for the Company, nor should it result in any significant
expense or capital expenditures. We will continue to review and test our
systems during 1998 and 1999 to ensure that our entry into the new millennium
is without incident.
Looking ahead to 1998 and beyond, we are very excited about the potential
for the Company. As mergers and acquisitions change the face of the financial
institution landscape, it is our belief that strong independent organizations,
like ours, will thrive. We have the capabilities to provide products and
services comparable to larger institutions, we have the capital structure to
sustain continued growth, and we have a commitment to customer service that
should allow the Company to capitalize on our competitors weaknesses.
As always, we would like to take this opportunity to thank our entire
staff, customers, fellow directors, and shareholders for their support during
the past year. We are proud of each of our dedicated employees who work hard
in providing superior customer service.
Sincerely,
Howard F. Etling Thomas M. Teschner
Chairman of the Board President and Chief Executive Officer
3
<PAGE> 5
SOUTHSIDE BANCSHARES CORP. - ORGANIZATION
Southside Bancshares Corp. (the Company) was incorporated in 1982 and has
operated as a registered bank holding company since 1983 under the Bank Holding
Company Act of 1956, as amended. The Company and its subsidiaries had
consolidated total assets of approximately $549,864,000 at December 31, 1997.
The following table shows the total assets at December 31, 1997, before
elimination of intercompany accounts, of each of the Company's subsidiary
banks, all of which are located in Missouri.
<TABLE>
<CAPTION>
TOTAL ASSETS AT
DECEMBER 31, 1997
SUBSIDIARY BANKS (IN THOUSANDS)
-------------------------------------------- -----------------
<S> <C>
South Side National Bank in St. Louis (SSNB) $353,316
State Bank of Jefferson County (SBJC) 57,683
Bank of Ste. Genevieve (BSG) 84,805
The Bank of St. Charles County (BSCC) 54,120
</TABLE>
The Company's subsidiary banks, which operate 13 banking offices in
Missouri, are engaged in the general banking business of accepting funds for
deposit, making loans, renting safe deposit boxes, and performing such other
banking services as are usual and customary in banks of similar size and
character.
Customers of the subsidiary banks are also offered fiduciary services
through the trust department of South Side National Bank in St. Louis (South
Side National Bank). At December 31, 1997, the combined market value of
fiduciary and custodial assets under management of the trust department was
approximately $307,000,000. These assets are not reflected in the consolidated
financial statements, as they do not represent assets of the Company.
The responsibility for the management of the subsidiary banks remains with
the officers and directors of the respective banks. The Company provides its
subsidiary banks with assistance and service in auditing, record keeping, tax
planning, trust operations, new business development, lending, regulatory
compliance, and human resources management.
Southside Bancshares Corp. has nine officers, the majority of whom are
also officers of South Side National Bank. South Side National Bank is a
national banking organization and employs 132 full-time and 16 part-time
employees. State Bank of Jefferson County, Bank of Ste. Genevieve, and The
Bank of St. Charles County are Missouri state-chartered banks and employ a
total of 79 full-time and 9 part-time employees.
4
<PAGE> 6
FINANCIAL HIGHLIGHTS
FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
------------------------------------------------------------------------------------
% % %
CHANGE Change Change
1997 97/96 1996 96/95 1995 95/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Total interest income $39,355 4% $37,868 2% $37,263 8%
Total interest expense 18,243 4 17,526 1 17,335 18
Net interest income 21,112 4 20,342 2 19,928 2
Provision for possible loan losses 60 - 60 (14) 70 (64)
Net interest income after
provision for possible loan losses 21,052 4 20,282 2 19,858 2
Net income 6,302 2 6,158 (9) 6,734 34
- -----------------------------------------------------------------------------------------------------------------------------------
SHARE DATA
Earnings per common share:
Basic $2.30 1% $2.27 (11)% $2.55 32%
Diluted 2.25 (1) 2.26 (11) 2.54 34
Dividends paid per common share .70 40 .50 37 .365 103
Book value 20.90 8 19.30 9 17.64 20
Tangible book value 20.81 8 19.18 10 17.49 21
Shares outstanding (year-end)(1) 2,797,670 (1) 2,836,670 - 2,849,650 10
Average shares outstanding 2,735,859 1 2,712,775 3 2,643,890 2
Average shares outstanding,
including potentially
dilutive shares 2,798,105 3 2,730,214 3 2,650,551 2
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $549,864 4% $527,907 3% $ 512,908 (1)%
Total deposits 483,363 3 467,276 2 457,567 (2)
Total loans 326,437 11 294,463 (3) 303,824 1
Allowance for possible loan losses 6,120 9 5,602 (1) 5,635 (21)
Short-term borrowings 5,333 229 1,623 108 779 (77)
ESOP debt - (100) 1,779 (40) 2,987 100
Subordinated capital notes - - - - (100)
Total shareholders' equity 56,653 7 52,841 12 47,300 24
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
As of and For the Years Ended December 31,
------------------------------------------
%
Change
1994 94/93 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS
Total interest income $34,383 (5)% $ 36,052
Total interest expense 14,753 (8) 16,059
Net interest income 19,630 (2) 19,993
Provision for possible loan losses 193 (93) 2,608
Net interest income after
provision for possible loan losses 19,437 12 17,385
Net income 5,014 65 3,041
- ------------------------------------------------------------------------------
SHARE DATA
Earnings per common share:
Basic $1.93 65% $ 1.17
Diluted 1.93 62 1.17
Dividends paid per common share .18 9 .165
Book value 14.66 5 13.93
Tangible book value 14.43 6 13.66
Shares outstanding (year-end)(1) 2,591,440 - 2,591,440
Average shares outstanding 2,591,440 - 2,591,440
Average shares outstanding,
including potentially
dilutive shares 2,600,022 - 2,591,440
- ------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $517,118 (3)% $ 530,649
Total deposits 468,093 (3) 484,308
Total loans 301,397 (2) 308,231
Allowance for possible loan losses 7,144 (14) 8,334
Short-term borrowings 3,378 (8) 3,678
ESOP debt - - -
Subordinated capital notes 4,190 - 4,190
Total shareholders' equity 38,002 5 36,102
- ------------------------------------------------------------------------------
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan-to-deposit ratio 67.53% 63.02% 66.40% 64.39% 63.64%
Allowance for possible loan losses to total loans 1.87 1.90 1.85 2.37 2.70
Dividend payout ratio (2) 30.43 22.03 14.31 9.33 14.10
Return on average assets 1.18 1.20 1.33 .97 .57
Return on average shareholders' equity 11.44 12.27 15.47 13.48 8.86
Average shareholders' equity to average total assets 10.28 9.75 8.62 7.19 6.48
Net interest margin on average interest-earning assets 4.34 4.42 4.41 4.27 4.30
Allowance for possible loan losses to nonperforming loans 175.16 473.54 172.11 136.13 62.95
Allowance for possible loan losses as a multiple of net charge-offs N/A (3) 60.2x 4.5x 5.2x 2.0x
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares outstanding at December 31, 1997 and 1996 include 86,478 and
98,832 shares, respectively, held by the 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.
(2) Dividends paid per common share divided by basic earnings per common
share.
(3) The ratio was not applicable in 1997 as recoveries exceeded charge-offs
for the year.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is presented to provide an understanding of the
consolidated financial condition and results of operations for the fiscal year
ended December 31, 1997 and prior years of the Company and its subsidiaries.
As a registered bank holding company, the Company is subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System (Federal Reserve) pursuant to the Bank Holding Company Act of 1956, as
amended. All subsidiary banks are subject to regulation by the Federal Reserve
and are also members of and subject to regulation by the Federal Deposit
Insurance Corporation (FDIC). The national banking subsidiary, South Side
National Bank in St. Louis, is subject to supervision and regulation by the
Office of the Comptroller of the Currency (OCC). The three state-chartered
banks are subject to supervision and regulation by the Missouri Division of
Finance.
BALANCE SHEET ANALYSIS
Total consolidated assets of the Company increased $21,957,000 to
$549,864,000 at December 31, 1997 when compared to $527,907,000 at December 31,
1996. The increase was the result of continued growth at three of the
Company's four subsidiary banks. An integral component of management's
strategic business plan has been to achieve controlled, profitable growth at
each of the subsidiary banks and, as a result, total assets have increased
$36,956,000 over the past two years.
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. Management expects real estate to continue to be a major
factor in future loan relationships, but recognizes that continued competitive
pressure from the secondary market for traditional residential loans will
result in further diversification in the portfolio.
The table below sets forth the components of the Company's loan portfolio
for each of the last five years:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995 1994 1993
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 69,168 $ 62,016 $ 62,214 $ 69,219 $ 73,566
Real estate - commercial 98,759 82,045 88,321 82,807 86,258
Real estate - construction 30,836 26,067 15,510 11,019 9,540
Real estate - residential 92,028 96,039 102,418 108,134 110,806
Consumer 23,627 17,304 17,626 18,334 18,849
Industrial revenue bonds 5,517 6,373 7,789 9,311 8,544
Other 6,502 4,619 9,946 2,573 668
-------- -------- -------- -------- --------
$326,437 $294,463 $303,824 $301,397 $308,231
======== ======== ======== ======== ========
</TABLE>
6
<PAGE> 8
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Total loans increased $31,974,000 during 1997, as the Company experienced
growth in all lending categories, with the exception of residential real estate
loans and industrial revenue bonds. St. Louis and the surrounding communities
continue to remain a very competitive lending environment; however, recent
acquisitions and mergers by other institutions have created opportunities to
compete for lending relationships with customers who feel displaced or
uncomfortable with their recently merged or acquired lender. With the
continued economic stability in the Company's market areas, management decided
that 1997 was an appropriate time to take a more aggressive approach toward
obtaining new lending relationships. While pursuing a slightly more aggressive
approach, management continues to remain committed to maintaining acceptable
asset quality levels and a solid net interest margin.
Total loans decreased by $9,361,000 during 1996 due to an intensely
competitive lending environment. Unlike 1997, management believed that 1996
was not the appropriate time to begin a more aggressive lending approach.
Consequently, some of the Company's more aggressive competitors were able to
take advantage of the situation, and offered more attractive financing packages
than the Company.
Following is a more detailed analysis of the changes in the individual
loan categories during 1997.
- Commercial, financial, and agricultural loans increased $7,152,000
during 1997, after having remained relatively stable during 1996. The
1997 increase can be largely attributed to two credit relationships
with customers in the broadcasting industry. This was an entry into a
new lending area for the Company; however, given the merger and
consolidation activity which is currently taking place in the radio and
television industry, it is unlikely that this is an area which will
provide an opportunity for significant continued growth.
- Commercial and construction real estate loans increased $16,714,000
and $4,769,000, respectively, during 1997, while residential real
estate loans declined by $4,011,000 during the year. The increase in
commercial real estate loans was due, in part, to a strong economic
environment which has encouraged businesses to expand operations and
invest in real property. Also contributing to the loan growth was
consolidation among some of the Company's competitors for commercial
and construction real estate loans. The Company's legal lending
capacity allows it to fulfill the financial needs of medium-sized
commercial customers who are too large for smaller independent
financial institutions. The increase in construction loans relates to
the aforementioned consolidation within the banking industry; however,
this lending category has also benefited from new home sales remaining
strong throughout 1997. Residential real estate loans declined for the
fifth straight year. In the current interest rate environment, the
majority of residential loan activity is being placed with the
secondary market mortgage lenders.
- Consumer loans increased by $6,323,000 during 1997, which reversed
a trend of four straight years in which the balance of this category
had declined. During the fourth quarter of 1996, the Company began to
renew its focus on automobile financing. The majority of the growth
occurred after the Company began utilizing the services of a direct
marketing firm. The firm identifies recent purchasers of new and used
vehicles, and the Company's subsidiary banks solicit refinancing of the
vehicles in their individual market territories, which proved very
successful during 1997.
- Industrial revenue bonds continue to decline as normal payments and
early repayments reduce the size of the existing portfolio. In
addition, there is very little new loan origination activity in this
area, as tax law changes in the late 1980s made it more difficult and
less advantageous to pursue this form of financing.
7
<PAGE> 9
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
ALLOWANCE FOR POSSIBLE LOAN LOSSES AND RISK ELEMENTS
Implicit in lending activities is the consideration that losses will be
experienced and the amount of such losses will vary from time to time,
depending upon the risk characteristics of the portfolio as affected by
economic conditions, competition, and the financial experience of borrowers.
The allowance for possible loan losses, which is designed to provide for the
risk of loss inherent in the lending process, is increased by the provision for
possible loan losses charged to expense and decreased by the amount of loans
charged off, net of recoveries. The allowance for possible loan losses
provides for anticipated potential loan losses and is maintained at a level
commensurate with management's evaluation of the risks inherent in the
subsidiary banks' loan portfolios. In order to identify potential risks in the
loan portfolios of the subsidiary banks, monthly reports, which contain
information on the overall characteristics of the subsidiary banks' loan
portfolios and specific analyses of loans requiring special attention,
including nonperforming and certain criticized loans, are reviewed by each
subsidiary bank's senior management personnel and Board of Directors. In
addition, the Company performs periodic examinations of individual loans and of
the overall loan portfolio of each banking subsidiary through the Company's
loan review process.
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(in thousands)
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $5,602 $5,635 $7,144 $8,334 $9,994
Provision charged to expense 60 60 70 193 2,608
Adjustment due to sale of
Bay-Hermann-Berger Bank - - (327) - -
Loans charged off (367) (1,219) (2,174) (2,318) (5,499)
Recoveries 825 1,126 922 935 1,231
------ ------- ------- ------- --------
Net recoveries (charge-offs) 458 (93) (1,252) (1,383) (4,268)
------ ------- ------- ------- --------
BALANCE AT END OF YEAR $6,120 $5,602 $5,635 $7,144 $8,334
====== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
RATIOS:
Allowance for possible loan losses:
As % of total loans 1.87% 1.90% 1.85% 2.37% 2.70%
As % of nonperforming loans 175.16 473.54 172.11 136.13 62.95
As multiple of net charge-offs * 60.2x 4.5x 5.2x 2.0x
Net charge-offs:
As % of total loans at year-end * .03% .41% .46% 1.38%
As % of average total loans * .03 .42 .47 1.29
As % of allowance for possible
loan losses at year-end * 1.66 22.22 19.36 51.21
</TABLE>
* Ratios are not applicable for 1997, as recoveries exceeded charge-offs
for the year.
8
<PAGE> 10
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The allowance for possible loan losses at December 31, 1997 was $6,120,000
or 1.87% of the total loans outstanding compared to $5,602,000 or 1.90% in 1996
and $5,635,000 or 1.85% in 1995. The $518,000 increase in the allowance for
possible loan losses reflects recoveries of loans previously charged-off
exceeding loan charge-offs for the year, as the provision for possible loan
losses remained at $60,000. The ratio of the allowance for possible loan
losses as a percentage of total loans declined slightly because loan growth
outpaced the increase in the allowance for possible loan losses.
As indicated above, the Company experienced net recoveries during 1997 of
$458,000, after having posted net charge-offs of $93,000 and $1,252,000 in 1996
and 1995, respectively. This represents the first time in the 15-year history
of the Company that net recoveries were achieved for an entire fiscal year,
and, as a result, management of the Company was able to maintain a relatively
low provision for possible loan losses. The provision for possible loan losses
charged to expense was $60,000, $60,000, and $70,000 in 1997, 1996, and 1995,
respectively.
Management records provisions for possible loan losses in amounts
sufficient to result in an allowance for possible loan losses that covers
current net charge-offs and risks believed to be inherent in the loan
portfolio. Amounts charged against current income are based on such factors as
past loan loss experience as it relates to current portfolio mix, evaluation of
potential losses in the loan portfolio, prevailing economic conditions, and
regular reviews of the portfolio conducted by loan officers, internal loan
review staff, and bank regulatory agencies. The loan review process entails
analyzing the borrower's financial condition, payment performance, impact of
economic and business conditions on certain borrowers, loan concentration risk,
sufficiency of collateral, and any other known risks inherent in borrowing
relationships. This process is used as the basis for determining the adequacy
of the allowance for possible loan losses. Company management believes the
allowance for possible loan losses is adequate to cover actual and potential
losses in the loan portfolio under current conditions.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(dollars in thousands)
December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,977 $1,037 $1,811 $2,829 $8,038
Past due 90 days and still accruing interest 517 146 1,463 2,419 5,187
Loans not included above which are
"troubled debt restructurings" as
defined in SFAS 15 - - - - 15
------ -------- ------- ------- -------
TOTAL NONPERFORMING LOANS 3,494 1,183 3,274 5,248 13,240
Other real estate owned 1,024 860 554 1,833 4,316
------ -------- ------- ------- -------
TOTAL NONPERFORMING ASSETS $4,518 $2,043 $3,828 $7,081 $17,556
====== ======== ======= ======= =======
RATIOS:
Nonperforming loans as % of
total loans 1.07% 0.40% 1.08% 1.74% 4.30%
Nonperforming assets as % of
total loans and other real
estate owned 1.38 0.69 1.26 2.34 5.62
Nonperforming assets as % of
total assets 0.82 0.39 0.75 1.37 3.31
Allowance for possible loan losses
as % of nonperforming loans 175.16 473.54 172.11 136.13 62.95
</TABLE>
9
<PAGE> 11
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Nonperforming loans totaled $3,494,000 or 1.07% of the loan portfolio at
December 31, 1997 compared to $1,183,000 or .40% of the loan portfolio at
December 31, 1996. Nonperforming assets totaled $4,518,000 or 0.82% of total
assets at December 31, 1997 compared to $2,043,000 or .39% of total assets at
December 31, 1996. The increase in both nonperforming loans and nonperforming
assets was primarily the result of a $2.5 million commercial lending
relationship which was placed on nonaccrual status during the year. The
borrower is currently in bankruptcy and has a reorganization plan pending
before the court. The Company is receiving payments on the debt as part of the
bankruptcy court proceedings, and management believes this borrower will
ultimately fulfill its financial obligations to the Company. However, in the
event foreclosure becomes necessary, management believes adequate reserves have
been allocated to this credit.
Current standards require that a loan be reported as impaired when it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The Company's loan policy
generally requires that a credit meeting the above criteria be placed on
nonaccrual status; however, loans which are past due more than 90 days as to
the payment of principal or interest are also considered to be impaired. These
loans are included in the total of nonperforming assets. Loans past due less
than 90 days are generally not considered impaired; however, a loan which is
current as to payments may be determined by management to demonstrate some of
the characteristics of an impaired loan. In these cases, the loan is
classified as impaired while management evaluates the appropriate course of
action. The Company's primary basis for measurement of impaired loans is the
collateral underlying the identified loan.
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 December 31, 1997, there were no concentrations of
loans exceeding 10% of total loans which were not disclosed as a category of
loans in note 3 to the consolidated financial statements of the Company.
The amounts received in cash and recognized as interest income on
nonaccrual loans were $113,000 and $27,000 for the years ended December 31,
1997 and 1996, respectively. If the contractual interest on these loans had
been recognized, such income would have been $232,000 and $133,000,
respectively. There were no restructured loans at December 31, 1997 or 1996.
INVESTMENT PORTFOLIO
The Company's investment portfolio has historically provided a stable
earnings base, a secondary source of long-term liquidity, and is one of the
primary means of adjusting interest rate sensitivity, thereby managing
interest-rate risk. The investment portfolio contains a mixture of debt
securities in terms of the types of securities, interest rates, and maturity
distribution. This diversity, as well as management's conservative philosophy
towards risk management, has resulted in a solid investment portfolio. Debt
securities included in the held to maturity category are stated at cost,
adjusted for amortization of premiums and accretion of discounts, in the
Company's consolidated financial statements. Debt securities included in the
available for sale category are recorded in the consolidated financial
statements at their market value.
The carrying value of the Company's investment portfolio decreased by
$14,155,000 during 1997 as funds from maturing investments were used to fund
the increase in loan volume. The Company's loan-to-deposit ratios throughout
1997 remained below 70%. Accordingly, management believes that utilizing
maturing investment securities to fund loan growth is a more effective means of
increasing net income, as compared to aggressively
10
<PAGE> 12
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
pursuing time deposits to fund loan growth. This strategy was particularly
effective during 1997 because of the intense deposit rate competition within
the subsidiary banks' markets and the relatively low yield available on
investment securities.
The carrying value of the Company's investment portfolio increased by
$27,520,000 in 1996, largely because of a decrease in loan demand at the
subsidiary banks.
The amortized cost and estimated market value of the Company's available
for sale and held to maturity debt securities at December 31, 1997, 1996, and
1995 are shown below:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------------------------- -------------------------- -------------------------
ESTIMATED Estimated Estimated
AMORTIZED MARKET Amortized Market Amortized Market
COST VALUE Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities
and obligations of U.S.
Government agencies
and corporations $ 26,899 $ 27,058 $ 18,861 $ 18,845 $ 7,569 $ 7,609
Obligations of states and
political subdivisions 300 304 445 451 530 543
Other securities 1,575 1,575 1,279 1,279 1,260 1,262
--------- --------- --------- --------- --------- ---------
28,774 28,937 20,585 20,575 9,359 9,414
Mortgage-backed securities 44,483 44,523 46,444 46,075 40,981 40,738
--------- --------- --------- --------- --------- ---------
$ 73,257 $ 73,460 $ 67,029 $ 66,650 $ 50,340 $ 50,152
========= ========= ========= ========= ========= =========
HELD TO MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government agencies
and corporations $ 72,065 $ 72,348 $ 92,469 $ 92,396 $ 83,086 $ 82,939
Obligations of states and
political subdivisions 23,544 24,316 21,709 22,461 21,875 22,822
Other securities - - 300 300 471 471
--------- --------- --------- --------- --------- ---------
95,609 96,664 114,478 115,157 105,432 106,232
Mortgage-backed securities 4,070 4,174 6,166 6,220 4,190 4,262
--------- --------- --------- --------- --------- ---------
$ 99,679 $ 100,838 $ 120,644 $ 121,377 $ 109,622 $ 110,494
========= ========= ========= ========= ========= =========
</TABLE>
The Company has designated certain debt securities with a market value of
approximately $73,460,000 and $66,650,000 as available for sale at December 31,
1997 and 1996, respectively, with the differences of $203,000 and $379,000,
respectively, between the market value and amortized cost of such securities
being recorded in a valuation reserve. Debt securities with an amortized cost
of $99,679,000 and $120,644,000 at December 31, 1997 and 1996, respectively,
remain as held to maturity securities, to be used for the Company's longer-term
liquidity needs. The held to maturity securities at December 31, 1997 and 1996
reflected market values of $100,838,000 and $121,377,000, respectively, which
represent net unrealized gains of $1,159,000 and $733,000 in 1997 and 1996,
respectively. Because it is not management's intention to sell securities from
the portfolio, these gains or losses are not anticipated to be realized by the
Company.
11
<PAGE> 13
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The market value of the Company's portfolio in relationship to the
amortized cost of the portfolio remained relatively stable during 1997 and 1996
after having improved significantly during 1995.
There were no sales of securities during 1997, 1996, and 1995.
At December 31, 1997, there were no securities of a single issuer that
exceeded 10% of shareholders' equity.
DEPOSITS
Deposits are the primary funding source for the Company's subsidiary banks
and are acquired from a broad base of local markets, including both individual
and commercial customers. Total deposits increased $16,087,000 and $9,709,000
in 1997 and 1996, respectively.
The increase in deposits during 1997 was due to a combined increase in
interest-bearing and noninterest-bearing demand deposits of $13,965,000 and
time deposits $100,000 and over of $3,882,000, which was partially offset by a
$488,000 decline in savings deposits and a $1,272,000 decline in time deposits
under $100,000. The increase in noninterest-bearing demand deposits was the
result of normal activity within this category. The increase in
interest-bearing demand deposit accounts was largely due to an increase in
money market deposits. In recent years, commercial and retail customers have
become increasingly more sophisticated in managing their cash positions and
more sensitive to the rate of interest being earned. During much of 1997,
there was very little spread between the rates paid on a preferred money market
account, which is tied to the 90-day U.S. Treasury bill rate, and the rates
being offered on longer term certificates of deposit. Consequently, many
depositors opted for the increased flexibility of the money market account over
the small increase in yield offered by the certificates of deposit. This also
explains the decline in certificates of deposit under $100,000. Time deposits
$100,000 and over continue to increase, although the Company has not actively
pursued these deposits. Much of the growth in the current year can be directly
attributed to the mergers and consolidations within the industry. Many of the
city, county, and local government offices in the Company's markets prefer to
conduct business with banks headquartered in their area. Oftentimes, these
relationships are rather large relationships, which exceed $100,000.
The 1996 deposit growth was largely in interest-bearing demand deposits
and time deposits $100,000 and over. The growth in these two portfolios was
partially offset by small declines in noninterest-bearing demand deposits,
savings deposits, and time deposits under $100,000. Interest-bearing demand
deposits increased by $4,850,000 during 1996, with the majority of this growth
attributable to deposit migration from noninterest-bearing demand and savings
deposits. Time deposits $100,000 and over increased $12,929,000 during 1996.
This increase was largely the result of a few larger public fund accounts, for
which the Company was the successful bidder. In each case, the Company was not
overly aggressive in the pricing of these deposits, and the yields were such
that profit margins existed between the rates paid on the deposits and
comparable investment securities. The decline in time deposits under $100,000
was largely due to the highly competitive market for these deposits during
1996. Several of the Company's competitors offered a number of special rates
throughout the year in an effort to build market share. Management of the
Company opted not to pursue the same course of action because, with the
decrease in loans during the year, the impact would have been detrimental to
the net interest margin.
12
<PAGE> 14
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The following table shows the breakdown of deposits at December 31, 1997,
1996, and 1995:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
------------------ ------------------------ ------------------
PERCENT Percent Percent
OF TOTAL of Total of Total
AMOUNT DEPOSITS Amount Deposits Amount Deposits
-------- -------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 61,308 12% $ 58,046 12% $ 60,999 13%
Interest-bearing demand deposits 139,177 29 128,474 28 123,624 27
Savings deposits 56,627 12 57,115 12 60,134 13
Time deposits under $100,000 172,830 36 174,102 37 176,200 39
-------- ---- -------- --- -------- ----
Total core deposits 429,942 89 417,737 89 420,957 92
Time deposits $100,000 and
over 53,421 11 49,539 11 36,610 8
-------- ---- -------- --- -------- ----
Total deposits $483,363 100% $467,276 100% $457,567 100%
======== ==== ======== === ======== ====
</TABLE>
The following table shows the amount of time deposits $100,000 and over by
time remaining until maturity at December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Three months or less $24,733 $12,899 $17,039
Over three through six months 12,494 19,850 9,723
Over six through twelve months 11,328 11,904 4,016
Over twelve months 4,866 4,886 5,832
------- -------- -------
$53,421 $49,539 $36,610
======= ======== =======
</TABLE>
The following table reflects the average daily balances, by category, at
December 31, 1997, 1996, and 1995, and their weighted average interest rates
for the respective years:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
----------------- ------------------------ -----------------
AVERAGE AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate
-------- ------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $ 55,323 - % $ 54,965 - % $59,162 - %
Interest-bearing demand deposits 130,046 3.34 123,924 3.33 120,098 3.41
Savings deposits 58,029 2.51 60,332 2.53 64,381 2.62
Time deposits under $100,000 173,382 5.37 175,239 5.40 176,943 5.36
Time deposits $100,000 and over 52,601 5.32 41,456 5.18 29,270 5.40
-------- ===== ----------- ==== -------- =====
$469,381 $455,916 $449,854
======== =========== ========
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings are an alternative to other funding sources and
consist primarily of federal funds purchased, securities sold under agreements
to repurchase, U.S. Treasury tax and loan notes, and other short-term
borrowings. These sources of funding are utilized primarily by South Side
National Bank and the Company itself. Depending on funding requirements and
liquidity strategies employed by the Company's Asset/Liability
13
<PAGE> 15
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Management Committee, these funds are used on a short-term basis. Securities
sold under agreements to repurchase (REPO) increased during 1997 and 1996
because of the introduction of a daily REPO Sweep account. This cash
management product allows commercial customers to more effectively invest their
operating capital.
The following table is a summary of short-term borrowings at December 31,
1997, 1996, and 1995:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- ----
<S> <C> <C> <C>
Securities sold under agreements
to repurchase $5,333 $1,623 $307
U.S. Treasury tax and loan notes - - 472
------ ------- ----
$5,333 $1,623 $779
====== ======= ====
</TABLE>
The average daily balances, weighted average daily interest rates, maximum
month-end amounts outstanding, and average interest rates at year-end for
short-term borrowings were as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
-------------------- ------------------------ ----------------
AVERAGE AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate
-------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $ 42 5.41% $ 188 5.85% $399 5.76%
Securities sold under
agreements to
repurchase 5,053 4.47 893 4.37 747 4.82
U.S. Treasury tax and loan
notes - - 703 5.97 1,333 5.40
Other short-term borrowings - - - - 479 8.77
-------- ======= ------- ===== ------- ====
$ 5,095 $ 1,784 $2,958
======== ======= =======
Total maximum short-term
borrowings outstanding
at any month-end during
the year $ 10,693 $ 3,308 $8,161
======== ======= =======
Average short-term borrowings
rate at end of year 4.40% 4.85% 6.70%
===== ===== ====
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Company's overall goal in asset/liability management is to achieve a
reasonable balance of rate-sensitive assets with rate-sensitive liabilities in
order to minimize the impact of changing rates on net income. As assets and
liabilities tend to become more rate sensitive, whether due to customer demands
or Company initiatives, it becomes more important that rates earned are matched
with rates paid, and that repricing dates are matched so the next earning
interval will have both components at current rates. Assets and liabilities
that mature or are repriced in one year or less are considered in the financial
services industry to be "rate sensitive." This means that as rates in the
marketplace change, the rates on these assets or liabilities will soon be
impacted. Given a reasonably balanced rate sensitivity position if rates are
increasing, the Company will have more interest income and more interest
expense. Conversely, if rates are decreasing, the Company will have less
interest income and less interest expense.
14
<PAGE> 16
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Short-term interest rate sensitive positions are critical in managing net
interest income, as they have an immediate impact on earnings during periods of
changing interest rates. Interest rate sensitivity is measured by
interest-sensitive gaps defined as the difference between interest-sensitive
assets and interest-sensitive liabilities within any specific time period. A
positive or negative interest-sensitive gap demonstrates the relative exposure
to interest rate movements. To the extent that these gaps are close to zero,
net interest income is protected from interest rate fluctuations for the
specific time period being examined. Examples of interest-sensitive assets and
liabilities include commercial loans whose interest rates are tied to the prime
commercial lending rate and money market deposit accounts whose interest rates
are tied to the three-month treasury bill rate. The objective of an interest
sensitivity analysis is to measure the potential impact of changes in the
levels of market interest rates on net interest income.
Management believes maintenance of appropriate rate-sensitive positions is
imperative in maintaining an adequate degree of liquidity and acceptable profit
margins, and has structured its deposit, investment, and loan portfolios
accordingly. It is the opinion of management that the Company has maintained
an adequate liquidity position and management will endeavor to do so in the
future.
RATE SENSITIVITY
Interest rate sensitivity is a key component of asset/liability management
and is related to liquidity, because each is affected by maturing assets and
sources of funds. Interest sensitivity, however, also takes into consideration
those assets and liabilities with interest rates which are subject to change
prior to maturity. The objective of interest sensitivity management is to
optimize earnings results, while managing, within internal policy constraints,
interest rate risk. The Company's policy on interest rate sensitivity is to
manage exposure to potential risk associated with changing interest rates by
maintaining a balance sheet posture in which annual net income is not
significantly affected by interest rate movements. The total absence of risk,
as well as excessive risk, can result in less than acceptable returns;
therefore, the Company manages its interest sensitivity risk between those two
extremes.
The table on the following page is an analysis of interest-sensitive
assets and liabilities at December 31, 1997 over various time horizons.
Because such an analysis does not capture many factors which determine interest
rate risk, the Company has put more emphasis on the use of a simulation model
to measure its exposure to changes in interest rates. Under different rate and
growth assumptions, these projections enable the Company to adjust its
strategies to protect the net interest margin against significant rate
fluctuations. Uniform sensitivity reports and guidelines are used by all
subsidiary banks of the Company. Current model projections indicate annual net
interest income would change by less than 10% should rates rise or fall within
200 basis points from their current level. Based on the Company's historical
analysis, interest-bearing demand and savings deposits have proven to be very
stable core deposits even through interest rate fluctuations. Accordingly,
management believes these deposits are not 100% rate sensitive within the
period of three months or less. As a result, these deposits have been
allocated between the four repricing categories as follows: three months or
less - 35%, three months through 12 months - 20%, over one year through five
years - 25%, and over five years - 20%.
As reflected on the Repricing and Interest Rate Sensitivity Analysis on
the following page, the Company has a well-balanced interest rate sensitivity
position. Generally, a one-year gap ratio in a range of .80x - 1.20x indicates
an entity is not subject to any undue interest rate risk. The Company's
current one-year gap of 1.08x is within an acceptable range.
15
<PAGE> 17
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)
December 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 $ 17,200 $ - $ - $ - $ 17,200
Investments available for sale 19,928 9,247 37,615 6,670 73,460
Investments held to maturity 6,763 18,858 55,736 18,322 99,679
Loans, net of unearned discount (1) 175,586 53,668 78,623 18,560 326,437
-------- --------- --------- ------- --------
Total interest-earning
assets 219,477 81,773 171,974 43,552 516,776
-------- --------- --------- ------- --------
Cumulative interest-earning assets 219,477 301,250 473,224 516,776 516,776
-------- --------- --------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 48,712 27,835 34,795 27,835 139,177
Savings deposits 19,819 11,325 14,158 11,325 56,627
Time deposits under $100,000 44,472 70,513 57,845 - 172,830
Time deposits $100,000 and over 26,034 23,821 3,566 - 53,421
Short-term borrowings 5,333 - - - 5,333
-------- --------- --------- ------- --------
Total interest-bearing
liabilities 144,370 133,494 110,364 39,160 427,388
-------- --------- --------- ------- --------
Cumulative interest-bearing
liabilities 144,370 277,864 388,228 427,388 427,388
-------- --------- --------- ------- --------
Gap analysis:
Interest sensitivity gap $ 75,107 $ (51,721) $ 61,610 $ 4,392 $ 89,388
======== ========= ========= ======= ========
Cumulative interest
sensitivity gap $ 75,107 $ 23,386 $ 84,996 $89,388 $ 89,388
======== ========= ========= ======= ========
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.52x 1.08x 1.22x 1.21x 1.21x
======== ========= ========= ======= ========
</TABLE>
(1) Nonaccrual loans are reported in the "over 1 year through 5 years"
column.
LIQUIDITY
The Company's Asset/Liability Management Committee also formulates
guidelines for and monitors the composition of assets and liabilities. The
objective is to meet earnings goals by producing the optimal yield and maturity
mix consistent with interest rate expectations and projected liquidity needs.
Achieving these goals is the central role of liquidity management, which
must ensure that the Company has ready access to sufficient funds to meet
existing commitments and future financial obligations. In addition, liquidity
management enables the Company to withstand fluctuations in deposit levels and
to provide for customers' credit needs in a timely and cost-effective manner.
Liquidity management, therefore, is viewed from both an asset and liability
perspective.
16
<PAGE> 18
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Asset liquidity is normally provided through the maturities of various
assets, the receipt of loan payments, and the interest collected on assets.
Additionally, as part of its overall asset/liability management strategy, the
Company designates certain investment securities as available for sale. In the
event that liquidity needs arise, these securities are available to be
converted to cash.
The most important source of liquidity for the Company is deposit
liquidity, which is the ability to raise new funds and renew maturing
liabilities. The Company's long-term customer relationships in the various
local markets are the foundation of the Company's long-term liquidity.
Short-term liquidity needs arise from continuous fluctuations in the flow
of funds on both sides of the balance sheet. The subsidiary banks control
their own asset/liability mix within guidelines of Company policy and their
individual loan demand and deposit structure, with guidance from the
Asset/Liability Management Committee. Other than South Side National Bank, the
subsidiary banks do not generally borrow funds.
As the parent company, Southside Bancshares Corp. maintains its liquidity
position and provides for its cash flow needs through dividends and management
fees received from its subsidiary banks.
It is the opinion of management that the Company has historically
maintained an adequate liquidity position and management will endeavor to
continue to do so in the future.
CAPITAL RESOURCES
A strong capital base is vital to any banking organization as capital
provides a solid foundation for anticipated future asset growth and promotes
depositor and investor confidence.
Assets vary with respect to risk. Some assets, such as cash or short-term
government securities, are practically risk free. Other assets, such as loans,
have increased risk associated with them. Capital requirements depend to some
extent on the degree of risk within a bank's asset categories and the level of
assets in those risk categories.
Bank regulators consider a range of factors when determining capital
adequacy. Such factors include the organization's size, quality and stability
of earnings, risk diversification, management expertise, asset quality,
liquidity, and internal controls. The risk-based capital guidelines, adopted
in 1990, define the components of capital, categorize assets into different
risk classes, and include certain off-balance-sheet items in the calculation of
capital requirements. Off-balance-sheet items are converted into
on-balance-sheet credit equivalents and are categorized into different risk
classes to determine the required capital associated with each class.
On-balance-sheet items are also assigned different risk weights to determine
required capital. Together, these two items comprise the risk-weighted asset
denominator of the required capital ratios.
Capital itself is categorized into two types: Tier I and Tier II. Tier I
capital elements include total shareholders' equity less goodwill and exclude
the effects of net unrealized gains or losses on available-for-sale securities.
Tier II capital includes other supplementary capital elements, subject to
certain limitations, such as mandatory convertible notes, subordinated debt,
and the allowance for possible loan losses. The maximum amount of the
allowance for possible loan losses which can be included as Tier II capital is
1.25% of risk-weighted assets.
17
<PAGE> 19
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The capital guidelines require banking organizations to maintain a minimum
total capital ratio of 8% (of which at least 4% must be Tier I capital). The
Company's total capital ratios under the risk-weighted guidelines at December
31, 1997 and 1996 were 17.38% and 17.88%, respectively, which included Tier I
capital ratios of 16.12% and 16.62%, respectively. In addition, the Company
and its subsidiary banks must maintain a minimum Tier I leverage ratio (Tier I
capital to adjusted total assets) of at least 3%. The Company's Tier I
leverage ratios were 10.34% and 10.12% at December 31, 1997 and 1996,
respectively. These ratios are well above the minimum risk-weighted capital
requirements.
All of the subsidiary banks of the Company also exceeded the various
regulatory capital requirements at December 31, 1997, 1996, and 1995.
Management reviews the various capital measures monthly to ensure that they are
within internal guidelines and within external guidelines as established by
law, and management believes that the Company's current capital position is
adequate to support its banking operations.
The following is a summary of data and ratios pertaining to the Company's
capital position at December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996 1995
------- ----------- -----------
<S> <C> <C> <C>
RISK-BASED CAPITAL:
Tier I capital $56,279 $52,778 $47,030
Total capital 60,664 56,767 50,986
Risk-weighted assets 349,079 317,494 314,770
RISK-BASED CAPITAL RATIOS:
Tier I capital to risk-weighted assets 16.12% 16.62% 14.94%
Minimum requirement 4.00 4.00 4.00
Total capital to risk-weighted assets 17.38 17.88 16.20
Minimum requirement 8.00 8.00 8.00
======= ======== ========
- -------------------------------------------------------------------------------
TIER I CAPITAL:
Tier I capital $56,279 $52,778 $47,030
Average fourth quarter total
consolidated assets less
intangibles 544,380 521,523 507,108
LEVERAGE CAPITAL RATIOS:
Tier I capital to average total
consolidated assets less
intangibles 10.34% 10.12% 9.27%
Minimum requirement 3.00 3.00 3.00
======= ======= =======
</TABLE>
18
<PAGE> 20
RESULTS OF OPERATIONS
Southside Bancshares Corp. and Subsidiaries
RESULTS OF OPERATIONS
EARNINGS SUMMARY
The consolidated net income of the Company was $6,302,000, $6,158,000, and
$6,734,000 for the years ended December 31, 1997, 1996, and 1995, respectively,
which resulted in basic earnings per common share of $2.30, $2.27, and $2.55 in
each of those years. The results for 1997 represent the fourth consecutive
year in which the Company has achieved record core net earnings, as net income
in 1995 included the effects of two nonrecurring items which totaled
$1,370,000. Excluding the effects of these two nonrecurring items, core net
earnings were $5,364,000 in 1995. The increases in core net earnings were
$144,000, $794,000, $350,000 in 1997, 1996, and 1995, respectively. The net
income in 1997 results in a return on average assets (ROA) of 1.18%, compared
to 1.20% and 1.33% in 1996 and 1995, respectively. The slight decline in ROA
in 1997 was largely the result of growth at the Company's subsidiary banks, as
average assets increased $20,819,000 or 4.0%. In addition, the return on
average shareholders' equity (ROE) in 1997 was 11.44%, compared to 12.27% and
15.47% in 1996 and 1995, respectively. The decline in the ROE over the past
three years is largely due to the Company's strengthened capital position.
As previously discussed, 1995 net income was impacted by two nonrecurring
items. The first of the two nonrecurring items was a litigation settlement
received by the Company's lead bank, South Side National Bank, and the second
was the gain recognized on the sale of the Company's subsidiary,
Bay-Hermann-Berger Bank.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis increased by $529,000,
$584,000, and $298,000 in 1997, 1996, and 1995, respectively. The 1997
increase was the result of an increase in average earning assets, which was
partially offset by a narrowing net interest margin. Average earning assets
increased $20,281,000 or 4% during 1997, with the majority of the growth in the
loan portfolio. However, rate competition in the Company's markets caused the
average yield on the loan portfolio to decline by 21 basis points from 9.19% in
1996 to 8.98% in 1997. This decrease in yield was the primary cause for the
drop in the net interest margin from 4.42% in 1996 to 4.34% in 1997, as the
Company's cost of funds remained relatively unchanged for the year at 4.3%.
The increase in 1996 was due to increased earnings on investment
securities and short-term investments, which were partially offset by a
decrease in interest income on loans and an increase in interest expense on
deposits. The $736,000 increase in the tax-equivalent interest earned on
investment securities was due to a combination of an increase in the average
balance outstanding during the year and an increase in the average yield in the
portfolio. Because of the deposit growth experienced during the year and a
slight decline in average loans outstanding, the Company had more funds
available to purchase securities during 1996. In addition, favorable interest
rate spreads between short-term rates and securities with maturities in the two
to five year range made securities more attractive and contributed to the
increase in the overall portfolio yield. The decline in loan interest was due
to the decrease in the average balance, while the increase in interest expense
was largely due to deposit growth. The average rate paid on almost all of the
Company's deposit products declined during 1996; however, an increase in the
average balance of time deposits $100,000 and over caused the overall interest
expense to increase. As indicated previously, the Company was not overly
aggressive in pricing these larger deposit relationships, as evidenced by the
fact that while the average balance outstanding increased more than $12
million, the average rate paid on these deposits declined 22 basis points.
19
<PAGE> 21
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
CONSOLIDATED AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES
<TABLE>
<CAPTION>
(dollars in thousands)
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
AVERAGE
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
-------- ------- --------
<S> <C> <C> <C>
ASSETS:
Loans, net of unearned discount (1) (2) (3) $311,266 $27,937 8.98%
Investments in debt securities:
Taxable (4) 155,938 9,478 6.08
Exempt from Federal income taxes (3) (4) 23,124 1,953 8.45
Short-term investments 16,103 871 5.41
-------- --------
Total interest-earning assets/
interest income/overall yield (3) 506,431 40,239 7.95
-------- ====
Allowance for loan losses (6,061)
Cash and due from banks 14,817
Other assets 20,622
--------
TOTAL ASSETS $535,809
========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing demand deposits $130,046 4,346 3.34
Savings deposits 58,029 1,459 2.51
Time deposits under $100,000 173,382 9,309 5.37
Time deposits $100,000 and over 52,601 2,796 5.32
Short-term borrowings 5,095 228 4.47
ESOP debt 1,235 105 8.50
Subordinated capital notes - - -
-------- --------
Total interest-bearing liabilities/
interest expense/overall rate 420,388 18,243 4.34
-------- =====
Noninterest-bearing demand deposits 55,323
Other liabilities 5,022
Shareholders' equity 55,076
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $535,809
========
NET INTEREST INCOME $21,996
========
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING ASSETS 4.34%
====
</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 had been taxable at a rate of 34%,
adjusted downward by the disallowance of the interest cost to carry
nontaxable loans and securities.
(4) Includes investments available for sale.
20
<PAGE> 22
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
Years ended December 31,
----------------------------------------------------------------------
1996 1995
------------------------------------ -------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
$295,683 $ 27,164 9.19% $297,480 $27,331 9.19%
148,780 8,917 5.99 140,073 8,175 5.84
22,943 1,918 8.36 22,273 1,924 8.64
18,744 994 5.30 13,708 788 5.75
-------- -------- -------- -------
486,150 38,993 8.02 473,534 38,218 8.07
-------- ==== ------- ====
(5,646) (6,175)
15,317 17,356
19,169 20,015
-------- --------
$514,990 $504,730
======== ========
$123,924 4,125 3.33% $120,098 4,095 3.41%
60,332 1,529 2.53 64,381 1,685 2.62
175,239 9,462 5.40 176,943 9,491 5.36
41,456 2,148 5.18 29,270 1,582 5.40
1,784 92 5.16 2,958 173 5.85
2,060 170 8.25 2,160 190 8.80
- - - 1,233 119 9.65
-------- -------- ------- -------
404,795 17,526 4.33 397,043 17,335 4.37
-------- ==== ------- ====
54,965 59,162
5,038 4,997
50,192 43,528
-------- --------
$514,990 $504,730
======== ========
$ 21,467 $20,883
======== =======
4.42% 4.41%
==== ====
</TABLE>
21
<PAGE> 23
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
ANALYSIS OF CHANGES IN NET INTEREST INCOME
DUE TO CHANGES IN VOLUME AND CHANGES IN RATES
The following table sets forth on a tax-equivalent basis, for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in volume and changes in rates. The change in interest
due to both volume and rate has been allocated in proportion to the
relationship of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
(in thousands)
Years ended December 31,
------------------------------------------------------------------------------
1997 COMPARED TO 1996 1996 Compared to 1995
------------------------------------------ ----------------------------------
INCREASE (DECREASE) Increase (Decrease)
DUE TO CHANGE IN Due to Change in
NET ---------------------- Net ----------------------
INCREASE AVERAGE AVERAGE Increase Average Average
(DECREASE) VOLUME RATE (Decrease) Volume Rate
---------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Changes in interest income on:
Loans $ 773 $ 1,405 $(632) $(167) $(167) $ -
Investment securities:
Taxable 561 427 134 742 525 217
Exempt from Federal income
taxes 35 15 20 (6) 57 (63)
Short-term investments (123) (143) 20 206 272 (66)
-------- ------- ----- ----- ----- ------
TOTAL INTEREST INCOME 1,246 1,704 (458) 775 687 88
-------- ------- ----- ------ ----- ------
Changes in interest expense on:
Interest-bearing demand
deposits 221 208 13 30 128 (98)
Savings deposits (70) (58) (12) (156) (101) (55)
Time deposits under $100,000 (153) (100) (53) (29) (96) 67
Time deposits $100,000
and over 648 589 59 566 633 (67)
Short-term borrowings 136 150 (14) (81) (62) (19)
ESOP debt (65) (70) 5 (20) (9) (11)
Subordinated capital notes - - - (119) (119) -
-------- ------- ----- ----- ----- ------
TOTAL INTEREST EXPENSE 717 719 (2) 191 374 (183)
-------- ------- ----- ------ ----- ------
CHANGE IN NET INTEREST INCOME $ 529 $ 985 $(456) $584 $313 $ 271
======== ======= ===== ====== ===== ======
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was again relatively low in 1997,
largely due to the fact that the Company experienced $458,000 in net recoveries
during the year. The provision for possible loan losses was $60,000 in 1997
and 1996 compared to $70,000 in 1995.
NONINTEREST INCOME
Noninterest income increased $127,000 in 1997 due to increases in trust
department and service charge revenue, which were partially offset by net
losses on the disposition of other real estate owned (OREO). The $128,000
increase in trust revenue was the result of a strong stock market and growth
resulting from recent acquisitions and mergers in the industry. Because the
majority of trust fees are based on the market value of the individual
accounts, a strong stock market translates into increased revenue for the
department. Merger activity in the Company's market has left some small to
mid-sized trust customers feeling unappreciated by their trust company's new
owners, as a result, many of the individuals have sought out smaller more
personalized trust departments, like the Company's. Trust department growth
was approximately $30,000,000 or 10% during 1997.
22
<PAGE> 24
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The increase in service charge revenue was attributable to a continuing
focus on this area. Because the Company has historically trailed its peers in
this category, the focus has been on reversing that trend. The increase in net
losses in OREO transactions is part of the normal course of business.
Depending on the timing of foreclosures, buyer interest levels and other
factors, sales of properties result in small gains or losses. Management
believes the valuation of OREO is based on the fair market value of the
underlying property.
Noninterest income decreased by $2,083,000 during 1996 as a result of the
effects of two nonrecurring items which were included in other income in 1995.
In February 1995, the Company settled a lawsuit in which the Company's
subsidiary, South Side National Bank, was plaintiff. Under the terms of the
settlement agreement executed by the parties, the Bank received a cash payment
of $1,400,000, which was offset by remaining legal expenses of approximately
$300,000. The legal expenses are included in noninterest expense as a part of
"attorney fees." In March 1995, the Company sold its wholly owned subsidiary,
Bay-Hermann-Berger Bank, which resulted in a pretax gain to the Company of
$825,000. Excluding the effects of these two items, noninterest income
increased by $113,000 during 1996 due, in large part, to gains on the sales of
other real estate owned.
NONINTEREST EXPENSE
Noninterest expense increased $622,000 during 1997 as a result of small
increases in employee costs and net occupancy and equipment expense and a
$530,000 increase in other expenses. The primary components of other expense
resulting in the increase over the prior year were other real estate owned
expense, amortization of investments in low-income housing projects and
advertising expense. The increase in other real estate owned expense relates
to a 61 unit mobile home park which the Company's lead bank acquired through
foreclosure. The units were renovated during 1997 and occupancy was at
approximately 50% at year end. Once the project is near full capacity it will
be self sufficient, until that time it will continue to generate losses. The
amortization of investments in low-income projects relate to the aforementioned
mobile home park, as well as, investments in four partnerships with the St.
Louis Equity Fund. The amortization of these investments is more than offset
by the federal and state tax credits generated by the projects and assist the
Company in reducing its effective tax rate. Late in 1996, the Company began to
increase its marketing efforts including expanded radio and media advertising.
With the mergers and consolidations occurring in the Company's markets,
management believes it is the appropriate time to focus on image enhancement
and customer awareness.
Total noninterest expense declined by $702,000 during 1996, aided largely
by a decline in the Federal Deposit Insurance Corporation (FDIC) assessment.
In addition to a $848,000 decrease in the FDIC assessments, attorney fees
decreased by $120,000, data processing expense was $371,000 lower, and other
expense was reduced by $147,000. Offsetting these expense reductions were
increases in salaries and benefits and net occupancy and equipment expense.
The reduction in the FDIC assessment was due to the substantial rate reduction
effected in 1995 when the Bank Insurance Fund reached its federally mandated
fully funded level. The reduction in data processing costs was due in part to
additional costs associated with the data processing conversion in 1995. The
remainder is due to the lower monthly servicing fees now being paid by each of
the banks. The increase in net occupancy and equipment expense can be
partially attributed to a new facility opened by South Side National Bank in
February 1996, as well as additional equipment costs as a result of the 1995
data processing conversion. Management anticipates occupancy expense will
continue to grow as additional locations are added and facilities are updated.
The increase in salaries and employee benefits was due in large part to normal
annual salary increases. In addition, costs associated with the Company's
employee benefit plans increased during 1996.
INCOME TAXES
Federal income tax expense was $2,308,000 in 1997 compared to $2,177,000
in 1996 and $2,558,000 in 1995. The changes in Federal income tax expense have
been relatively consistent with the changes in pretax income,
23
<PAGE> 25
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
although the Company's effective tax rate increased to 26.8% in 1997 from 26.1%
in 1996 and 27.5% in 1995. The increase in 1997 in the effective tax rate was
the result of a decrease in tax-exempt loan income.
ACCOUNTING PRONOUNCEMENTS
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, geographic 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.
EFFECTS OF INFLATION
Persistent high rates of inflation can have a significant effect on the
reported financial condition and results of operations of all industries.
However, the asset and liability structure of a bank is substantially different
from that of an industrial company, in that virtually all assets and
liabilities of a bank are monetary in nature. Accordingly, changes in interest
rates may have a significant impact on a bank's performance. Interest rates do
not necessarily move in the same direction, or in the same magnitude, as the
prices of other goods and services.
Inflation does have an impact on the growth of total assets in the banking
industry, often resulting in a need to increase equity capital at higher than
normal rates to maintain an appropriate equity-to-assets ratio.
Although it is obvious that inflation affects the growth of total assets,
it is difficult to measure the impact precisely. Only new assets acquired in
each year are directly affected, so a simple adjustment of asset totals by use
of an inflation index is not meaningful. The results of operations also have
been affected by inflation, but again there is no simple way to measure the
effect on the various categories of income and expense.
Interest rates in particular are significantly affected by inflation, but
neither the timing nor the magnitude of the changes coincides with changes in
standard measurements of inflation such as the Consumer Price Index.
Additionally, changes in interest rates on some types of consumer deposits may
be delayed. These factors in turn affect the composition of sources of funds
by reducing the growth of deposits that are less interest rate sensitive and
increasing the need for funds that are more interest rate sensitive.
FINANCIAL INSTRUMENT MARKET VALUE
As disclosed in note 15 to the Company's consolidated financial
statements, the fair value of financial instrument assets exceeded the balance
sheet amounts of those instruments by $6,663,000 and $6,854,000 as of December
31, 1997 and 1996, respectively, while the fair value of financial instrument
liabilities was less than the amounts included in the balance sheet by $508,000
and $704,000 as of December 31, 1997 and 1996, respectively.
Such comparative information reflects the effect of the current rate
environment, as well as the Company's asset/liability and credit risk
management programs. The fair value estimates are based on existing financial
instruments at December 31, 1997 and do not reflect amounts which would be
ultimately realized in the normal course of business.
24
<PAGE> 26
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
YEAR 2000 COMPLIANCE
The Company began reviewing and testing its computer hardware, computer
software, and other affected areas during 1997 for their compliance with the
year 2000 considerations. Based on the results of the preliminary procedures,
management does not believe year 2000 will pose any major problems for the
Company, nor should it result in any significant expense or capital
expenditures. The Company will continue to review and test its systems during
1998 and 1999 to ensure that its entry into the new millennium is without
incident.
COMMON STOCK - MARKET PRICE AND DIVIDENDS
The Company's common stock is traded on the National Association of
Company Securities Dealers, Inc./SmallCap Market System (NASDAQ/SCM) under the
symbol SBCO.
The table below sets forth the high and low bid prices for the Company's
common stock for the periods presented.
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
QUARTER 1ST 2ND 3RD 4TH 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low bid $22.75 $21.50 $33.50 $33.25 $19.00 $19.00 $20.25 $20.50
High bid 25.00 37.00 40.50 35.50 21.00 20.00 20.50 22.75
Dividends paid
per common
share .16 .17 .18 .19 .10 .12 .13 .15
====== ====== ===== ====== ====== ====== ===== ======
</TABLE>
The market price of the Company's common stock on February 25, 1998 was
$35.25 bid, $36.00 asked. The approximate number of shareholders of the common
stock of the Company as of February 25, 1998 was 700.
FINANCIAL REPORT
A copy of the Company's 1997 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission, including all exhibits and financial
statements thereto, is available without charge to shareholders on written
request to Joseph W. Pope, Senior Vice President and Chief Financial Officer,
Southside Bancshares Corp., 3606 Gravois Avenue, St. Louis, Missouri 63116.
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Southside Bancshares Corp. will be
held at 2:00 p.m. on April 23, 1998 at South Side National Bank's Lansdowne
facility, which is located at 4666 Lansdowne, St. Louis, Missouri.
The Company's bylaws require that notice of shareholder nominations for
directors at the Company's Annual Meeting of Shareholders must be received by
the Secretary of the Company not less than 75 days prior to the date of the
Annual Meeting.
25
<PAGE> 27
COMMON STOCK - MARKET PRICE AND DIVIDENDS (CONT.)
Southside Bancshares Corp. and Subsidiaries
TRANSFER AGENT AND STOCK LISTING
The Company's transfer agent is UMB Bank, N.A., Securities Transfer
Division, P.O. Box 410064, Kansas City, Missouri 64141-0064, (816) 860-7786.
The stock is traded on the NASDAQ SmallCap Market under the symbol SBCO.
26
<PAGE> 28
SOUTHSIDE BANCSHARES CORP.
3606 Gravois Avenue
St. Louis, MO 63116
(314) 776-7000
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
February 25, 1998
The management of Southside Bancshares Corp. is responsible for the preparation
and integrity of all information contained in the accompanying consolidated
financial statements. The consolidated financial statements have been prepared
in conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the consolidated financial statements, management
makes informed judgments and estimates.
To help meet this responsibility, the Company maintains a system of internal
control that is reviewed and revised, as necessary, in view of the results of
internal and independent audits, management recommendations, changes in the
Company's business, and other conditions that come to management's attention.
Management believes that the Company's system, taken as a whole, provides
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorization, (2) transactions are recorded
as necessary to permit preparation of consolidated financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (3) access to assets is permitted only in accordance
with management's general or specific authorization, and (4) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Management also seeks to assure the objectivity and integrity of the Company's
financial data by careful selection of managers, an internal audit function,
and organizational arrangements that provide an appropriate division of
responsibility.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Their Independent
Auditors' Report, which is based on an audit made in accordance with generally
accepted auditing standards, expresses an opinion as to the fair presentation
of the consolidated financial statements. In performing their audit, KPMG Peat
Marwick LLP considers the Company's internal control to the extent they deem
necessary in order to issue their opinion on the consolidated financial
statements.
The Audit Committee of the Board of Directors is composed solely of directors
who are not employees of the Company. The Committee meets periodically and
privately with the independent auditors, the internal auditors, and the
financial officers of the Company to review matters relating to the quality of
the financial reporting of the Company, the related internal controls, and the
scope and results of audit examinations. It is also responsible for
recommending the appointment of the Company's independent auditors, subject to
shareholder approval.
Thomas M. Teschner Joseph W. Pope
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
27
<PAGE> 29
THIS PAGE WAS INTENTIONALLY LEFT BLANK
<PAGE> 30
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Southside Bancshares Corp.:
We have audited the accompanying consolidated balance sheets of Southside
Bancshares Corp. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Southside
Bancshares Corp. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
February 25, 1998
28
<PAGE> 31
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- -------
<S> <C> <C>
Cash and due from banks ............................................. $ 18,302 $ 17,156
Short-term investments .............................................. 17,200 13,500
Investments in debt securities:
Available for sale, at market value .............................. 73,460 66,650
Held to maturity, at amortized cost (approximate
market value of $100,838 in 1997 and $121,377 in 1996) ......... 99,679 120,644
-------- --------
Total investments in debt securities ....................... 173,139 187,294
-------- --------
Loans, net of unearned discount ..................................... 326,437 294,463
Less allowance for possible loan losses .......................... 6,120 5,602
-------- --------
Loans, net ................................................. 320,317 288,861
-------- --------
Bank premises and equipment ......................................... 10,866 10,785
Other assets ........................................................ 10,040 10,311
-------- --------
TOTAL ASSETS ............................................... $549,864 $527,907
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing .............................................. $ 61,308 $ 58,046
Interest-bearing ................................................. 422,055 409,230
-------- --------
Total deposits ............................................. 483,363 467,276
Securities sold under agreements to repurchase ...................... 5,333 1,623
ESOP debt.... ....................................................... - 1,779
Other liabilities ................................................... 4,515 4,388
-------- --------
Total liabilities .......................................... 493,211 475,066
-------- --------
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 ........................ 2,859 2,859
Surplus. ......................................................... 6,023 5,819
Retained earnings ................................................ 50,841 46,448
Unearned ESOP shares ............................................. (1,384) (1,581)
Treasury stock, at cost, 61,340 and 22,340 shares, respectively .. (1,820) (450)
Net unrealized gain (loss) on available for sale securities ...... 134 (254)
-------- --------
Total shareholders' equity ................................. 56,653 52,841
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $549,864 $527,907
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 32
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ..................................... $ 27,717 $ 26,691 $ 27,030
Interest on investments in debt securities available for sale:
Taxable ...................................................... 4,336 3,701 3,238
Exempt from Federal income taxes ............................. 24 32 41
Interest on investments in debt securities held to maturity:
Taxable ...................................................... 5,142 5,216 4,937
Exempt from Federal income taxes ............................. 1,265 1,234 1,229
Interest on short-term investments ............................. 871 994 788
--------- --------- ---------
TOTAL INTEREST INCOME .................................. 39,355 37,868 37,263
--------- --------- ---------
Interest expense:
Interest on deposits ........................................... 17,910 17,264 16,853
Interest on short-term borrowings .............................. 228 92 173
Interest on ESOP debt .......................................... 105 170 190
Interest on subordinated capital notes ......................... - - 119
--------- --------- ---------
TOTAL INTEREST EXPENSE ................................. 18,243 17,526 17,335
--------- --------- ---------
NET INTEREST INCOME .................................... 21,112 20,342 19,928
Provision for possible loan losses ................................. 60 60 70
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ........................... 21,052 20,282 19,858
--------- --------- ---------
Noninterest income:
Trust department ............................................... 1,046 918 940
Service charges on deposit accounts ............................ 1,330 1,256 1,230
Net (losses) gains on sales of other real estate owned and other
foreclosed property .......................................... (64) 29 (88)
Settlement of litigation ...................................... - - 1,400
Gain on sale of Bay-Hermann-Berger Bank ........................ - - 825
Other .......................................................... 485 467 446
--------- --------- ---------
TOTAL NONINTEREST INCOME ............................... 2,797 2,670 4,753
--------- --------- ---------
Noninterest expense:
Salaries and employee benefits ................................. 7,561 7,463 6,940
Net occupancy and equipment expense ............................ 2,384 2,328 2,067
Data processing ................................................ 465 467 838
Federal Deposit Insurance Corporation assessment ............... 47 138 986
Attorney fees .................................................. 407 376 496
Other .......................................................... 4,375 3,845 3,992
--------- --------- ---------
TOTAL NONINTEREST EXPENSE .............................. 15,239 14,617 15,319
--------- --------- ---------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE ........................................ 8,610 8,335 9,292
Federal income tax expense ......................................... 2,308 2,177 2,558
--------- --------- ---------
NET INCOME ............................................. $ 6,302 $ 6,158 $ 6,734
========= ========= =========
SHARE DATA:
Earnings per common share - basic ............................. $ 2.30 $ 2.27 $ 2.55
========= ========= =========
Earnings per common share - diluted ............................ $ 2.25 $ 2.26 $ 2.54
========= ========= =========
Dividends paid per common share ................................ $ .70 $ .50 $ .365
========= ========= =========
Average common shares outstanding .............................. 2,735,859 2,712,775 2,643,890
========= ========= =========
Average common shares outstanding, including
potentially dilutive shares .................................. 2,798,105 2,730,214 2,650,551
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 33
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS) ON
UNEARNED AVAILABLE
COMMON RETAINED ESOP TREASURY FOR SALE
STOCK SURPLUS EARNINGS SHARES STOCK SECURITIES TOTAL
------ ------- -------- -------- -------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ........... $2,591 $1,698 $35,890 $ - $ - $ (2,177) $38,002
Net income ............................. - - 6,734 - - - 6,734
Cash dividends paid ($.365 per share) .. - - (969) - - - (969)
Issued 266,680 common shares ........... 267 4,000 - - - - 4,267
Exercise of stock options
(890 shares) ....................... 1 11 - - - - 12
Purchase of 186,670 common
shares by ESOP ..................... - - - (2,987) - - (2,987)
Allocation of 18,670 shares to
ESOP participants .................. - 57 - 299 - - 356
Purchase of 9,360 common shares
for treasury ....................... - - - - (167) - (167)
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect ..... - - - - - 2,052 2,052
------ ------- -------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 ........... 2,859 5,766 41,655 (2,688) (167) (125) 47,300
Net income ............................. - - 6,158 - - - 6,158
Cash dividends paid ($.50 per
share) ............................. - - (1,365) - - - (1,365)
Allocation of 12,354 shares to
ESOP participants .................. - 53 - 198 - - 251
Purchase of 56,814 shares by ESOP
participants ....................... - - - 909 - - 909
Purchase of 12,980 common shares
for treasury ....................... - - - - (283) - (283)
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect ...... - - - - - (129) (129)
------ ------- -------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 ........... 2,859 5,819 46,448 (1,581) (450) (254) 52,841
Net income ............................. - - 6,302 - - - 6,302
Cash dividends paid ($.70 per share) ... - - (1,909) - - - (1,909)
Allocation of 12,354 shares to
ESOP participants .................. - 204 - 197 - - 401
Purchase of 39,000 common shares
for treasury ....................... - - - - (1,370) - (1,370)
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect ...... - - - - - 388 388
------ ------- -------- ------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997 ........... $2,859 $6,023 $50,841 $(1,384) $(1,820) $ 134 $ 56,653
====== ======= ======== ======= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 34
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 6,302 $6,158 $6,734
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 1,626 1,920 1,877
Provision for possible loan losses ................................ 60 60 70
Provision for deferred income taxes ............................... (286) 50 395
Net losses (gains) on sales of other real estate owned and
other foreclosed property ...................................... 64 (29) 88
Gain on sale of Bay-Hermann-Berger Bank ........................... - - (825)
Increase (decrease) in income taxes payable ....................... (245) (381) 571
Decrease in accrued interest receivable ........................... 34 118 111
Increase in accrued interest payable .............................. 32 10 364
ESOP compensation expense ......................................... 401 251 356
Other operating activities, net ................................... 403 (495) (183)
-------- -------- --------
Total adjustments ............................................. 2,089 1,504 2,824
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 8,391 7,662 9,558
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in short-term investments ....................... (3,700) 5,618 (9,271)
Proceeds from maturities of and principal payments on debt securities:
Available for sale ................................................... 14,092 7,984 4,636
Held to maturity ..................................................... 33,461 37,260 23,455
Purchases of debt securities:.
Available for sale ................................................... (19,391) (24,729) (4,700)
Held to maturity ..................................................... (13,720) (48,720) (18,462)
Purchase of life insurance .............................................. - (1,250) -
Net (increase) decrease in loans ........................................ (32,596) 7,083 (17,266)
Recoveries of loans previously charged off .............................. 825 1,126 922
Purchases of bank premises and equipment ................................ (1,213) (1,194) (2,344)
Proceeds from sales of other real estate owned .......................... 258 798 1,774
Proceeds from sale of Bay-Hermann-Berger Bank, net of cash transferred .. - - 2,213
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES ......................... (21,984) (16,024) (19,043)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits .................. 13,477 (1,122) (14,002)
Net increase in time deposits ........................................... 2,610 10,831 25,153
Net increase (decrease) in short-term borrowings ........................ 3,710 844 (138)
Payments for ESOP debt .................................................. (1,779) (299) -
Payments for maturing long-term debt .................................... - - (2,250)
Payments for subordinated capital notes ................................. - - (4,190)
Proceeds from issuance of common stock .................................. - - 4,279
Payments to acquire treasury stock ...................................... (1,370) (283) (167)
Cash dividends paid ..................................................... (1,909) (1,365) (969)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................... 14,739 8,606 7,716
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... 1,146 244 (1,769)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................... 17,156 16,912 18,681
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ..................................... $18,302 $17,156 $16,912
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings .................................. $18,275 $17,516 $16,971
Income taxes ......................................................... 2,498 2,497 2,026
======== ======== ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans .......... $492 $1,059 $989
Loans made to facilitate the sale of other real estate owned ......... - - 388
Guarantee of ESOP debt ............................................... - - 2,987
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 35
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Southside Bancshares Corp. and its banking subsidiaries (the Company)
provide a full range of banking services to individual and corporate customers
throughout the eastern portions of Missouri, including the City of St. Louis
and the counties of Franklin, Jefferson, St. Charles, St. Francois, Ste.
Genevieve, St. Louis, and Washington, through its four subsidiary banks. In
February 1995 the Company sold its wholly owned subsidiary, Bay-Hermann-Berger
Bank, which accounted for less than 5% of total assets as of the date of sale,
in a cash transaction with an unaffiliated financial institution.
The Company is subject to competition from other financial and
nonfinancial institutions providing financial products in these Missouri
markets. Additionally, the Company is subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory agencies.
The accounting and reporting policies of the Company conform, in all
material respects, to generally accepted accounting principles within the
banking industry. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions, including the determination of the allowance
for possible loan losses, that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The more significant of the Company's accounting policies are set forth
below:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its banking subsidiaries, after elimination of all significant intercompany
accounts and transactions.
SHORT-TERM INVESTMENTS
Short-term investments primarily represent federal funds sold.
INVESTMENTS IN DEBT SECURITIES
At the time of purchase, debt securities are classified into one of three
categories: trading, available for sale, or held to maturity. The Company has
not and does not intend to hold any trading securities. Held to maturity
securities are those securities for which the Company has the ability and
intent to hold until maturity. All other securities not included in held to
maturity are classified as available for sale.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and reported as a separate component of shareholders'
equity until realized. A decline in the market value of any available for sale
or held to maturity security below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost basis for
the security.
Premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific-identification method
for determining the cost of securities sold.
INTEREST ON LOANS
Interest on commercial, real estate mortgage, and installment loans is
credited to income based on the principal amount outstanding. Loans are placed
on a nonaccrual basis when interest is past due 90 days or more and when, in
the opinion of management, full collection of principal or interest is
unlikely. At the time a loan is placed on nonaccrual status, interest accrued
in the current year but not collected is charged against current income, with
any prior year interest accrued and unpaid charged against the allowance for
possible loan losses. Subsequent interest payments received on such loans are
applied to principal if there is any doubt as to the collectibility of such
principal; otherwise, such receipts are recorded as interest
33
<PAGE> 36
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
income. Loans are returned to accrual status only when borrowers have brought
all past due principal and interest payments current and, in the opinion of
management, the borrowers have demonstrated the ability to make future payments
of principal and interest as scheduled.
Loan origination fees and costs, to the extent deemed significant, are
deferred and amortized over the life of the underlying loan.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is increased by provisions charged
to expense and reduced by loans charged off, net of recoveries. The allowance
for possible loan losses is maintained at a level considered adequate to
provide for potential loan losses based on management's evaluation of current
economic conditions, changes in the character and size of the loan portfolio,
portfolio risk characteristics, prior loss experience, and results of periodic
credit reviews of the loan portfolio.
Management believes the allowance for possible loan losses is adequate to
absorb losses in the loan portfolio. While management uses available
information to recognize loan losses, future additions to the allowance may be
necessary based on changes in economic conditions. Additionally, regulatory
agencies, as an integral part of their examination process, periodically review
the subsidiary banks' allowances for possible loan losses. Such agencies may
require the subsidiary banks to increase their allowances for possible loan
losses based on their judgments and interpretations about information available
to them at the time of their examinations.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due, both principal and interest, according to
the contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan must be discounted at the loan's
effective interest rate. Alternatively, impairment can be measured by
reference to an observable market price, if one exists, or the fair value of
the collateral for a collateral-dependent loan. Regardless of the historical
method used, the Company measures impairment based on the fair value of the
collateral when the creditor has determined foreclosure is probable.
Additionally, impairment of a restructured loan is measured by discounting the
total expected future cash flows at the loan's effective rate of interest as
stated in the original loan agreement. The Company continues to use existing
nonaccrual methods for recognizing interest income on impaired loans.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
using the straight-line method over periods of 10 to 40 years for buildings and
3 to 15 years for furniture and equipment. Rents collected under lease
agreements for space in subsidiary bank buildings are credited to occupancy
expense in the noninterest expenses category.
OTHER REAL ESTATE OWNED
Other real estate owned, included in other assets in the accompanying
consolidated balance sheets, represents property acquired through foreclosure
or deeded to the Company's banking subsidiaries in lieu of foreclosure on real
estate loans for which the borrowers have defaulted as to payment of principal
and interest. Other real estate owned is recorded on an individual asset basis
at the lower of fair value minus estimated selling costs, or fair value at the
date of acquisition (cost). If the fair value minus estimated selling costs is
less than cost, the deficiency is recorded in a valuation reserve account
through a charge against income. Subsequent increases in the fair value minus
estimated selling costs are recorded through a reversal of the valuation
reserve, but not below zero.
Gains and losses resulting from the sale of other real estate owned are
credited or charged to current period earnings. Costs of maintaining and
operating other real estate owned are expensed as incurred and expenditures to
complete or improve other real estate owned properties are capitalized if the
expenditures are expected to be recovered upon ultimate sale of the property.
INTANGIBLE ASSETS
Intangible assets, consisting primarily of goodwill and a core deposit
base premium, are included in other assets in the consolidated balance sheets.
Goodwill, the excess of cost over the fair value of net assets acquired in
business combinations accounted for as purchases, is amortized using the
straight-line method over 15 years. The core deposit base premium is
34
<PAGE> 37
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
being amortized over 10 years, the estimated life of the deposit base acquired.
INCOME TAXES
The Company and its subsidiary banks file consolidated income tax returns.
Provisions for income taxes are based on the tax effects of transac-tions
which are included in the determination of pretax accounting income.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
TRUST ASSETS
Assets held by the Company's national banking subsidiary in a fiduciary or
agency capacity for customers are not included in the consolidated financial
statements, as such items are not assets of the Company or its subsidiaries.
Trust department operating expense, included in noninterest expenses on the
consolidated statements of income, excludes salaries and employee benefits of
trust department personnel.
STOCK OPTION PLAN
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS 123 also
allows entities to continue to apply the provision of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and later years as if the fair value
based method defined in SFAS 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS 123.
EARNINGS PER COMMON SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, Earnings
Per Share (SFAS 128). SFAS 128 supersedes APB Opinion No. 15, Earnings Per
Share (APB 15) and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock. SFAS 128 was issued to simplify the
com-putation of EPS and to make the U.S. standard more compatible with the EPS
standards of other countries and that of the International Accounting Standards
Committee (IASC). It replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted 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. Basic EPS, unlike
primary 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 entity. Diluted EPS is computed similarly
to fully diluted EPS under APB 15.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers cash and due from banks to be cash and cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flow expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
35
<PAGE> 38
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
TRANSFERS AND SERVICING FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
The Company adopted the provisions of SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
(SFAS 125) on January 1, 1997 which provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishment of
liabilities based on the consistent application of a financial-components
approach that focuses on control.
Under the financial-components approach, the Company recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 also provides consistent
standards for distinguishing transfers of financial assets that are secured
borrowings. The adoption of SFAS 125 did not have a material impact on the
Company's consolidated financial position, results of operations, or liquidity.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform with the
current year presentation.
NOTE 2 -- INVESTMENTS IN DEBT SECURITIES
The amortized cost and estimated market values of debt securities
classified as available for sale at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997
-------------------------------------
GROSS
AMOR- UNREALIZED ESTIMATED
TIZED ------------- MARKET
COST GAINS LOSSES VALUE
------- ------ -------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Govern-
ment agencies
and corpora-
tions $26,899 $167 $ (8) $27,058
Obligations of
states and
political
subdivisions 300 4 - 304
Mortgage-backed
securities 44,483 288 (248) 44,523
Other securities 1,575 - - 1,575
------- ---- ------ --------
$73,257 $459 $ (256) $ 73,460
======= ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
1996
---------------------------------
Gross
Amor- Unrealized Estimated
tized ------------- Market
Cost Gains Losses Value
------- ----- ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Govern-
ment agencies
and corpora-
tions $18,861 $51 $(67) $18,845
Obligations of
states and
political
subdivisions 445 6 - 451
Mortgage-backed
securities 46,444 132 (501) 46,075
Other securities 1,279 - - 1,279
------- ----- ------ ---------
$67,029 $189 $(568) $66,650
======= ===== ====== =========
</TABLE>
The amortized cost and estimated market value of debt securities
classified as available for sale at December 31, 1997, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers have the right to call or prepay obligations with or without
prepayment penalties.
<TABLE>
<CAPTION>
(in thousands)
AMOR- ESTIMATED
TIZED MARKET
COST VALUE
------- ---------
<S> <C> <C>
Due in one year or less $ 9,367 $ 9,369
Due after one year through
five years 15,367 15,472
Due after five years through
ten years 2,565 2,621
Mortgage-backed securities 44,483 44,523
Federal Home Loan Bank stock -
no stated maturity 1,283 1,283
Federal National Mortgage Association
stock - no stated maturity 5 5
Federal Reserve Bank stock -
no stated maturity 187 187
------- -------
$73,257 $73,460
======= =======
</TABLE>
36
<PAGE> 39
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
The amortized cost and estimated market values of debt securities
classified as held to maturity at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997
----------------------------------
Gross
Amor- Unrealized Estimated
tized -------------- Market
Cost Gains Losses Value
------- ----- ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Govern-
ment agencies
and corpora-
tions $72,065 $ 429 $(146) $ 72,348
Obligations of
states and
political
subdivisions 23,544 775 (3) 24,316
Mortgage-backed
securities 4,070 104 - 4,174
------- ------ ------ --------
$99,679 $1,308 $(149) $100,838
======= ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
1996
-----------------------------------
Amor- Gross Estimated
tized Unrealized Market
Cost Gains Losses Value
-------- ------ ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Govern-
ment agencies
and corpora-
tions $92,469 $354 $(427) $92,396
Obligations of
states and
political
subdivisions 21,709 774 (22) 22,461
Mortgage-backed
securities 6,166 73 (19) 6,220
Other debt
securities 300 - - 300
-------- ------ ------ ---------
$120,644 $1,201 $(468) $121,377
======== ====== ====== =========
</TABLE>
The amortized cost and estimated market value of debt securities
classified as held to maturity at December 31, 1997, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers have the right to call or prepay obligations with or without
prepayment penalties.
<TABLE>
<CAPTION>
(in thousands)
Amor- Estimated
tized Market
Cost Value
------- ---------
<S> <C> <C>
Due in one year or less $21,892 $21,916
Due after one year through
five years 55,395 55,933
Due after five years through
ten years 16,498 16,951
Due after ten years 1,824 1,864
Mortgage-backed securities 4,070 4,174
------- ---------
$99,679 $100,838
======= =========
</TABLE>
There were no sales of debt securities during 1997, 1996, and 1995.
The carrying value of securities pledged to secure deposits and
collateralize borrowings amounted to $69,100,000 and $56,844,000 at December
31, 1997 and 1996, respectively.
NOTE 3 -- LOANS
Loans, by category, at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
---- ----
<S> <C> <C>
Commercial, financial,
and agricultural $ 69,168 $ 62,016
Real estate - commercial 98,759 82,045
Real estate - construction 30,836 26,067
Real estate - residential 92,028 96,039
Consumer 23,627 17,304
Industrial revenue bonds 5,517 6,373
Other 6,502 4,619
-------- --------
Total loans 326,437 294,463
Less allowance for possible
loan losses 6,120 5,602
-------- --------
Loans, net $320,317 $288,861
======== ========
</TABLE>
The Company's banking subsidiaries grant agricultural, commercial,
residential, and consumer loans to customers throughout their service area,
which consists primarily of the eastern portion of Missouri, including the City
of St. Louis and the counties of Franklin, Jefferson, St. Charles, St.
Francois, St. Louis, Ste. Genevieve, and Washington. The Company has a
diversified loan portfolio, with no particular concentration of credit in any
one economic sector in this service area; however, a substantial portion of the
portfolio is concentrated in and secured by real estate. The ability of the
Company's borrowers to honor their contractual obligations is dependent upon
the local economies and their effect on the real estate market.
37
<PAGE> 40
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
The Company's investment in industrial revenue bonds are classified as
held to maturity. The estimated market value of these instruments was
$5,738,000 and $6,628,000 at December 31, 1997 and 1996, respectively.
Transactions in the allowance for possible loan losses for the years ended
December 31, 1997, 1996, and 1995 were as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Balance at beginning of
year $5,602 $5,635 $ 7,144
Provision charged
to expense 60 60 70
Adjustment due to sale of
Bay-Hermann-Berger
Bank - - (327)
Loans charged off (367) (1,219) (2,174)
Recoveries 825 1,126 922
------ ------- -------
Balance at end of year $6,120 $5,602 $ 5,635
====== ======= =======
</TABLE>
A summary of impaired loans, including nonaccrual loans, at December 31,
1997 and 1996 follows:
<TABLE>
<CAPTION> (in thousands)
1997 1996
------- ------
<S> <C> <C>
Nonaccrual loans $2,977 $1,037
Impaired loans continuing
to accrue interest 1,176 3,528
------- ------
Total impaired loans $4,153 $4,565
======= ======
Allowance for possible losses
on impaired loans $1,637 $1,759
======= ======
Impaired loans with no related
allowance for possible
loan losses $1,374 $ 951
======= ======
</TABLE>
As of January 1, 1995, the Company had impaired loans of $5,248,000 for
which specific reserves of $733,000 were allocated.
The average balance of impaired loans during the year was $2,997,000,
$6,821,000, and $5,569,000 at December 31, 1997, 1996, and 1995, respectively.
If interest on nonaccrual loans, including amounts computed on principal
balances charged off on such loans, had been accrued, such income would have
been $232,000, $133,000, and $160,000 for the years ended December 31, 1997,
1996, and 1995, respectively. The amount recognized as interest income
on nonaccrual loans was $113,000, $27,000, and $66,000 for the years ended
December 31, 1997, 1996, and 1995, respectively.
The amount recognized as interest income on other impaired loans
continuing to accrue interest was $102,000, $277,000, and $365,000 for the
years ended December 31, 1997, 1996, and 1995, respectively.
There were no restructured loans at December 31, 1997 and 1996.
Aggregate loan transactions involving executive officers and directors of
the Company and its subsidiaries for the year ended December 31, 1997 are
summarized below (in thousands). This summary excludes all loans to executive
officers and directors whose indebtedness to the Company and its subsidiaries
did not exceed $60,000 at any time during 1997.
<TABLE>
<S> <C>
Aggregate balance, December 31, 1996 $12,084
New loans and advances 18,113
Repayments (20,860)
-------
Aggregate balance, December 31, 1997 $ 9,337
=======
</TABLE>
All such loans to executive officers and directors were made in the normal
course of business on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other persons, and did not involve more than the normal risk
of collectibility. There were no loans involving executive officers and
directors which were on nonaccrual status or past due 90 days and still
accruing interest as of December 31, 1997.
NOTE 4 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
---- ----
<S> <C> <C>
Land $3,216 $2,804
Buildings 10,013 9,841
Furniture and equipment 5,868 6,033
------- -------
19,097 18,678
Less accumulated depreciation
and amortization 8,231 7,893
------- -------
$10,866 $10,785
======= =======
</TABLE>
38
<PAGE> 41
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Depreciation and amortization of bank premises and equipment charged to
noninterest expense amounted to $1,108,000, $1,167,000, and $960,000 for 1997,
1996, and 1995, respectively.
Rents collected and credited to net occupancy expense of bank premises
amounted to $116,000, $137,000, and $102,000 for 1997, 1996, and 1995,
respectively.
NOTE 5 -- DEPOSITS
Deposits, by category, at December 31, 1997 and 1996 and the respective
weighted average interest rates paid thereon for the years then ended are as
follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
------------------ -----------------
Average Average
Amount Rate Amount Rate
------ ------- --------- -------
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $61,308 -% $ 58,046 -%
Interest-bearing
demand deposits 139,177 3.34 128,474 3.33
Savings deposits 56,627 2.51 57,115 2.53
Time deposits:
Under $100,000 172,830 5.37 174,102 5.40
$100,000 and over 53,421 5.32 49,539 5.18
-------- ==== -------- ====
$483,363 $467,276
======== ========
</TABLE>
A summary of time deposits as of December 31, 1997 by time remaining until
maturity is as follows:
<TABLE>
<S> <C>
Due in one year or less $158,771
Due after one year through two years 42,404
Due after two years through three years 15,618
Due after three years through four years 4,604
Due after four years through five years 4,755
Thereafter 99
--------
$226,251
========
</TABLE>
Interest paid on deposits consists of the following for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest-bearing
demand deposits $4,346 $ 4,125 $ 4,095
Savings deposits 1,459 1,529 1,685
Time deposits:
Under $100,000 9,309 9,462 9,491
$100,000 and over 2,796 2,148 1,582
------- ------- -------
$17,910 $17,264 $16,853
======= ======= =======
</TABLE>
NOTE 6 -- SHORT-TERM BORROWINGS
A summary of short-term borrowings at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
---- ----
<S> <C> <C>
Securities sold under agree-
ments to repurchase $5,333 $1,623
====== ======
</TABLE>
The average balance of securities sold under agreements to repurchase for
1997, 1996, and 1995 was $5,053,000, $893,000, and $747,000, respectively.
The maximum month-end balance of such borrowings for 1997, 1996, and 1995 was
$9,693,000, $2,039,000, and $1,988,000, respectively.
NOTE 7 -- ESOP DEBT
In April 1995, the Company's Employee Stock Ownership Plan borrowed
$2,987,000 from an unaffiliated financial institution, the proceeds of which
were used to purchase 186,670 shares of the Company's common stock. During
September 1997, the Company borrowed $1,581,000 from South Side National Bank
and repaid the unaffiliated financial institution. As discussed more fully in
note 10, the debt is guaranteed by the Company and, while it was maintained at
an unaffiliated financial institution, was reflected on the Company's
consolidated balance sheet. The debt is secured by the remaining 98,832 shares
of unreleased and released but unallocated shares of the Company's common
stock. The debt agreement requires ten equal annual installment payments.
During 1996, the first installment payment was made. In addition, a
supplemental principal payment of $909,000 was made for the purchase and
allocation of 56,814 shares of stock for plan participants under the 401(k)
provisions of the plan. The note bears interest at the prime rate, which was
8.50% at December 31, 1997.
NOTE 8 -- SUBORDINATED CAPITAL NOTES
On April 17, 1995, the Company retired, prior to scheduled maturity,
$4,190,000 of 9.65% subordinated capital notes with a stated maturity of
October 23, 1995 (Notes), which represented all of the outstanding Notes. In
accordance with the provisions of the Notes, the funds necessary to liquidate
the securities were provided through the issuance of capital securities in a
private placement of the Company's common stock. A total of 266,680 shares of
the Company's $1 par value common stock were issued at $16.00 per share.
39
<PAGE> 42
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 9 -- FEDERAL INCOME TAXES
The current and deferred portions of Federal income tax expense for 1997,
1996, and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Current $2,594 $2,127 $2,163
Deferred tax expense (286) 50 395
------ ------- -------
Federal income tax
expense $2,308 $2,177 $2,558
====== ======= =======
</TABLE>
A reconciliation of reported Federal income tax expense to income tax
expense computed by applying the federal statutory rate of 34% in 1997, 1996,
and 1995 to income before Federal income tax expense is as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Computed income tax ex-
pense $2,928 $2,834 $3,159
Tax-exempt interest income (517) (674) (562)
Other, net (103) 17 (39)
------ ------- -------
Federal income tax
expense $2,308 $2,177 $2,558
====== ======= =======
</TABLE>
The components of deferred tax assets and liabilities at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $2,081 $1,905
Deferred expense 288 214
Available for sale securities - 123
Other, net 78 28
------- -------
Total deferred tax assets 2,447 2,270
------- -------
Deferred tax liabilities:
Available for sale securities (67) -
Depreciation of premises and
equipment (388) (390)
Discount on debt securities, net (157) (111)
Deferred loan fees (133) (163)
------- -------
Total deferred tax liabilities (745) (664)
------- -------
Net deferred tax assets $1,702 $1,606
======= =======
</TABLE>
The Company has not established a valuation allowance for deferred tax
assets as of December 31, 1997 or 1996 due to management's belief that all
criteria for recognition of the assets have been met.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
PENSION
The Company has a noncontributory pension plan which covers substantially
all of its employees. The Company accrues and makes contributions designed to
fund normal service costs on a current basis using a projected unit credit cost
method and to amortize unfunded past service costs over a period of 30 years.
During 1997, the Board of Directors of the Company voted to terminate the
Company's noncon-tributory pension plan effective May 31, 1997. The benefits
under the plan were frozen as of March 31, 1997 and plan benefits ceased to
accrue. As the fair value of plan assets exceeded the value of accumulated
benefit obligations as of December 31, 1997, the Company has elected to provide
benefits with all plan assets. Although the termination of the plan has not
been approved by regulatory authorities, management expects the termination to
be approved in 1998 and the pension plan will be liquidated at the time of
regulatory approval. Upon termination, all benefits will become 100% vested,
and all persons entitled to benefits will be eligible to request an immediate
lump-sum settlement of the benefit entitlement. Management anticipates a
pension curtailment gain of approximately $400,000 in 1998 in conjunction with
the termination of the plan.
Accumulated plan benefit information, as estimated by the consulting
actuary, and plan net assets determined as of and for the years ended December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
------- ------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligations $ 869 $ 790
===== ======
Accumulated benefit
obligations 869 $ 834
===== ======
Projected benefit obligation 1,075 1,397
Plan assets at fair value 1,075 879
----- ------
Projected benefit obligation in
excess of plan assets - (518)
Unrecognized portion of net
transition obligation - 120
Unrecognized net gain - -
----- ------
Accrued pension cost $ - $ (398)
===== ======
<CAPTION>
(in thousands)
1997 1996 1995
------ ------- -----
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost - benefits
earned during period $162 $139 $124
Interest cost on projected
benefit obligation 97 87 89
Return on plan assets (61) (60) (52)
Net amortization and
deferral 29 22 26
---- ---- ----
Net periodic pen-
sion cost $227 $188 $187
==== ==== ====
</TABLE>
40
<PAGE> 43
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Assumptions used were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- -------- ------
<S> <C> <C> <C>
Discount rate in determining
benefit obligations 6.5% 7.0% 7.0%
Rate of increase in compensa-
tion levels 4.5 4.5 4.5
Expected long-term rate on assets 6.5 7.0 7.0
==== ==== ===
</TABLE>
ESOP
The Company's Board of Directors authorized the adoption of an employee
stock ownership plan with 401(k) provisions (ESOP) for substantially all
employees of the Company's subsidiary banks. Effective during 1996, the
provisions of the Company's 401(k) thrift plan were combined under the ESOP
plan.
In April 1995, the Company leveraged the ESOP plan through a $2,987,000
borrowing from an unaffiliated financial institution, the proceeds of which
were used to purchase 186,670 shares of the Company's common stock. In
September 1997, the Company repaid the unaffiliated financial institution
through borrowings from South Side National Bank. The Company now makes annual
contributions to the ESOP equal to the ESOP's debt service less dividends
received by the ESOP. All dividends on unallocated shares received by the ESOP
are used to pay debt service. As the debt is repaid, shares are released from
collateral and allocated to active employees, based on the proportion of debt
service paid in the year. Accordingly, the debt of the ESOP was recorded as
debt and the shares pledged as collateral were reported as unearned ESOP shares
in the consolidated balance sheet. As shares are released from collateral, the
Company reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings-per-share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as a reduction of
debt and accrued interest. ESOP compensation expense was $401,000, $251,000,
and $356,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. The ESOP shares as of December 31, 1997 were as follows:
<TABLE>
<S> <C>
Allocated shares 303,429
Shares released for allocation 12,354
Unreleased shares 86,478
----------
Total ESOP shares 402,261
==========
Fair value of unreleased shares at
December 31, 1997 $2,983,000
==========
</TABLE>
In addition, under the 401(k) provisions the ESOP provides for a 50%
matching contribution by the Company on employee elective deferral amounts up
to 6% of annual compensation. The matching contribu-tions charged to expense
for the years 1997, 1996, and 1995 were $107,000, $99,000, and $78,000,
respectively.
STOCK OPTIONS
The Company maintains a nonqualified stock option plan under which options
to purchase up to 200,000 shares of common stock could be granted to certain
executive officers of the Company and its subsidiary banks. Options granted
under the plan vest on a pro rata basis over a five-year period and expire at
the end of ten years from the date of grant. In 1993, 25,000 options were
granted at $11.00 per share. Of the options granted, 2,400 have been
exercised, 5,600 have been forfeited, and 17,000 are still outstanding. There
were no options granted during 1995. In 1996, 75,000 options were granted at
$19.00 per share, all of which remain outstanding as of December 31, 1996, and
100,000 options remain available for future grants. In 1997, the remaining
100,000 options were granted at $24 per share, all of which remain outstanding
as of December 31, 1997.
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1996 and
1997 consistent with the provisions of SFAS 123, the Company's net income and
earnings per common share would have been the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Net income - as reported $ 6,302,000 $6,158,000
Net income - pro forma 6,170,000 6,115,000
Earnings per common share -
diluted, as reported 2.25 2.26
Earnings per common share -
pro forma diluted 2.21 2.24
============ ==========
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period
41
<PAGE> 44
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
of five years and compensation cost for options granted prior to January 1, 1996
is not considered.
The fair value of each option grant for 1997 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Volatility 30.0% 30.0%
Risk-free interest rate 6.0% 6.0%
Expected life 7 YEARS 5 years
Expected dividend yield 3.6% 2.6%
======= =======
</TABLE>
The pro forma information is provided for informational purposes only and
is not necessarily indicative of the results of operations that would have
occurred or of the future anticipated results of operations of the Company.
NOTE 11 -- EARNINGS PER SHARE
The computation of EPS at December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 6,302 $ 6,158 $ 6,734
Average common shares
outstanding 2,735,859 2,712,775 2,643,890
========== ========== ==========
Basic EPS $ 2.30 $ 2.27 $ 2.55
========== ========== ==========
Diluted EPS:
Income available to
common shareholders $ 6,302 $ 6,158 $ 6,734
========== ========== ==========
Average common shares
outstanding 2,735,859 2,712,775 2,643,890
Dilutive potential due to
stock options 62,246 17,439 6,661
---------- ---------- ----------
Average number of
common shares and
dilutive potential
common shares
outstanding 2,798,105 2,730,214 2,650,551
========== ========== ==========
Diluted EPS $ 2.25 $ 2.26 $ 2.54
========== ========== ==========
</TABLE>
NOTE 12 -- SUPERVISION AND REGULATION
The Company's subsidiary banks are required to maintain certain daily
reserve balances on hand in accordance with regulatory requirements.
Restricted funds used to meet regulatory reserve requirements amounted to
$3,292,000 and $3,131,000 at December 31, 1997 and 1996, respectively.
The Company is registered with and subject to supervision and regulation
by the Board of Governors of the Federal Reserve System pursuant to the Bank
Holding Company Act of 1956 as amended. The Company is also subject to
periodic reporting requirements and regulation by the Securities and Exchange
Commission. All subsidiary banks are subject to regulation by the Board of
Governors of the Federal Reserve System and, in addition, they are also members
of and subject to regulation by the FDIC. The state-chartered subsidiary banks
are subject to supervision and regulation by the Missouri Division of Finance.
The national bank subsidiary is subject to supervision and regulation by the
Office of the Comptroller of the Currency (OCC).
The earnings of the subsidiary banks are affected not only by competing
financial institutions and general economic conditions, but also by the
policies of various governmental regulatory authorities and state and federal
laws, particularly as they relate to powers authorized to banks and bank
holding companies. The Company and all subsidiary banks are also subject to
the provisions of the Community Reinvestment Act.
Subsidiary bank dividends are the principal source of funds for the
payment of dividends by the Company to its shareholders. By regulation, the
Company's national banking subsidiary is prohibited from paying dividends in
excess of its current year's net income plus its retained net income from the
preceding two years, unless prior regulatory approval is obtained. The
subsidiary banks are also required to maintain certain minimum capital ratios,
which further limit their ability to pay dividends to the Company. At December
31, 1997, $13,089,000 was available for dividends to the Company without
reducing capital of the subsidiary banks below minimum standards.
The Company's subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company's subsidiary banks must meet specific capital
guidelines that involve quantitative measures of the Company's subsidiary
banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's subsidiary banks' capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
42
<PAGE> 45
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Quantitative measures established by regulations to ensure capital
adequacy require the Company and its subsidiary banks to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1997, the Company and its subsidiary banks meet
all capital adequacy requirements to which they are subject.
As of the most recent notification from regulatory authorities, the
subsidiary banks were categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the subsidiary banks must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
subsidiary banks' categories.
The Company and subsidiary banks' actual and required capital amounts (in
thousands) and ratios as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
To Be
Well Capitalized
Under
Prompt Corrective
For Capital Action
Actual Adequacy Purposes Provisions
---------------- ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK-
WEIGHTED ASSETS)
COMPANY $60,664 17.38% $27,926 8% $ - - %
SSNB 38,434 17.21 17,871 8 22,339 10
SBJC 6,255 17.14 2,920 8 3,650 10
BSG 10,174 19.65 4,143 8 5,179 10
BSCC 4,842 13.89 2,790 8 3,487 10
TIER I CAPITAL (TO RISK-
WEIGHTED ASSETS)
COMPANY $56,279 16.12% $13,963 4% $ - - %
SSNB 35,624 15.95 8,935 4 13,403 6
SBJC 5,798 15.89 1,460 4 2,190 6
BSG 9,525 18.39 2,071 4 3,107 6
BSCC 4,405 12.63 1,395 4 2,092 6
TIER I CAPITAL (TO ADJUSTED
AVERAGE ASSETS)
COMPANY $56,279 10.34% $16,331 3% $ - - %
SSNB 35,624 10.26 10,416 3 17,359 5
SBJC 5,798 9.96 1,747 3 2,911 5
BSG 9,525 11.10 2,575 3 4,292 5
BSCC 4,405 8.67 1,523 3 2,539 5
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
To Be
Well Capitalized
Under
Prompt Corrective
For Capital Action
Actual Adequacy Purposes Provisions
---------------- ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK-
(WEIGHTED ASSETS)
COMPANY $56,767 17.88% $25,400 8.00% $ - - %
SSNB 36,406 18.32 15,897 8.00 19,871 10.00
SBJC 5,929 18.09 2,621 8.00 3,277 10.00
BSG 9,752 19.77 3,945 8.00 4,931 10.00
BSCC 4,565 14.57 2,506 8.00 3,133 10.00
TIER I CAPITAL (TO RISK-
(WEIGHTED ASSETS)
COMPANY $52,778 16.62% $12,700 4.00% $ - - %
SSNB 33,906 17.06 7,949 4.00 11,923 6.00
SBJC 5,518 16.84 1,311 4.00 1,966 6.00
BSG 9,133 18.52 1,973 4.00 2,959 6.00
BSCC 4,171 13.31 1,253 4.00 1,880 6.00
TIER I CAPITAL (TO ADJUSTED
(AVERAGE ASSETS)
COMPANY $52,778 10.12% $15,646 3.00% $ - - %
SSNB 33,906 10.19 9,980 3.00 16,633 5.00
SBJC 5,518 10.22 1,621 3.00 2,701 5.00
BSG 9,133 10.52 2,604 3.00 4,340 5.00
BSCC 4,171 9.46 1,323 3.00 2,205 5.00
</TABLE>
NOTE 13 -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Following are condensed financial statements of Southside Bancshares Corp.
(parent company only) for the periods indicated:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------- -------
<S> <C> <C>
Cash $ 1,198 $ 297
Investment in subsidiary banks 56,092 53,349
Other assets 1,736 1,490
------- -------
TOTAL ASSETS $59,026 $55,136
======= =======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
ESOP debt $1,581 $ 1,779
Other liabilities 792 516
Shareholders' equity 56,653 52,841
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $59,026 $55,136
======= =======
</TABLE>
43
<PAGE> 46
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUE:
Dividends received from
subsidiary banks $5,050 $3,000 $ 239
Gain on sale of Bay-
Hermann-Berger Bank - - 825
Other 368 297 91
------ ------ ------
Total revenue 5,418 3,297 1,155
------ ------ ------
EXPENSES:
Interest expense 139 170 351
Other 1,952 1,558 623
------ ------ ------
Total expenses 2,091 1,728 974
------ ------ ------
Income before income
tax benefit and un-
distributed earnings
of subsidiary banks 3,327 1,569 181
Income tax benefit 496 431 52
------ ------ ------
Income before
undistributed earnings
of subsidiary banks 3,823 2,000 233
Undistributed earnings of
subsidiary banks 2,479 4,158 6,501
------ ------ ------
NET INCOME $6,302 $6,158 $6,734
====== ====== ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,302 $ 6,158 $ 6,734
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Undistributed earnings
of subsidiary banks (2,479) (4,158) (6,501)
Gain on sale of Bay-
Hermann-Berger Bank - - (825)
Other operating activities, net 555 688 479
-------- --------- -----
Net cash provided
by (used in)
operating activities 4,378 2,688 (113)
-------- --------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of life insurance - (1,250) -
Proceeds from the sale
of Bay-Hermann-Berger Bank - - 3,145
-------- -------- ------
Net cash provided
by (used in)
investing activities - (1,250) 3,145
-------- --------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for ESOP debt (1,779) (299) -
Proceeds from ESOP debt 1,581 - -
Principal reductions
on notes payable - - (6,440)
Proceeds from issuance of
common stock - - 4,279
Payments to acquire treasury stock (1,370) (283) (167)
Cash dividends paid (1,909) (1,365) (969)
-------- --------- -----
Net cash used in
financing activities (3,477) (1,947) (3,297)
-------- --------- ------
Net increase (de-
crease) in cash 901 (509) (265)
Cash, beginning of year 297 806 1,071
-------- --------- ------
Cash, end of year $ 1,198 $ 297 $ 806
======== ========= =======
Supplemental disclosures of cash
flow information - cash paid
during the year for:
Interest on subordinated
capital notes and debt $ 139 $ 170 $ 351
Income taxes 2,498 2,497 2,026
Guarantee of ESOP debt - - 2,987
====== ========= ======
</TABLE>
NOTE 14 -- CONTINGENCIES
In the normal course of business, the Company had certain litigation
pending at December 31, 1996. In the opinion of management, after consultation
with legal counsel, none of this litigation will have a material adverse effect
on the consolidated financial condition of the Company.
NOTE 15 -- DISCLOSURES ABOUT
FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments may involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for financial instruments included on
the consolidated balance sheets.
Following is a summary of the Company's off-balance-sheet financial
instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands)
Contractual Amount
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Financial instruments whose
contractual amounts represent:
Commitments to extend
credit $60,971 $60,599
Standby letters of credit 2,758 1,984
========= =========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Of the total commitments to extend credit at
December 31, 1997 and 1996, $8,428,000 and $8,121,000, respectively, represent
fixed rate loan commitments. Since many of the commitments are expected to
expire
44
<PAGE> 47
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies, but includes residential or
income-producing commercial property, marketable securities, inventory,
accounts receivable, and premises and equipment.
Standby letters of credit written are conditional commitments issued by
the Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The Company's policy is to issue letters of credit which have a
maximum expiration date of one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans
to customers.
Following is a summary of the carrying amounts and fair values of the
Company's financial instruments which were on the consolidated balance sheets
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands)
1997 1996
------------------ ------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance sheet assets:
Cash and due
from banks $18,302 $ 18,302 $ 17,156 $ 17,156
Short-term
investments 17,200 17,200 13,500 13,500
Investments in
debt securities:
Available
for sale 73,460 73,460 66,650 66,650
Held to
maturity 99,679 100,840 120,644 121,377
Loans, net 320,317 325,819 288,861 294,982
======== ======== ======== ========
Balance sheet
liabilities:
Deposits $483,363 $482,855 $467,276 $466,572
Short-term
borrowings 5,333 5,333 1,623 1,623
ESOP debt - - 1,779 1,779
======== ======== ======== ========
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND OTHER SHORT-TERM INSTRUMENTS
Cash and due from banks, federal funds sold (purchased), securities sold
under agreements to repurchase, U.S. Treasury tax and loan notes, and other
short-term borrowings are either demand instruments or reprice in a short time
period. Accordingly, the carrying amount is a reasonable estimate of fair
value.
DEBT SECURITIES
The fair value of debt securities in which the Company has invested to
hold to maturity and investments available for sale are based on quoted market
prices or dealer quotes.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed maturity time deposits is estimated using the rates
currently offered for deposits of similar remaining maturities.
ESOP DEBT AND SUBORDINATED CAPITAL NOTES
The estimate of the fair value of ESOP debt and subordinated capital notes
is the carrying value of the instruments. Due to the interest rates and risk
characteristics, carrying value is a reasonable approximation of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and the
present creditworthiness of such counterparties. The Company believes such
commitments have been made on terms which are competitive in the markets in
which it operates; however, no premium or discount is offered thereon and,
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial
45
<PAGE> 48
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company has a trust department that
contributes net fee income annually. The trust department is not considered a
financial instrument, and its value has not been incorporated into the fair
value estimates. Other assets and liabilities that are not considered
financial assets or liabilities include property, equipment, and goodwill. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
NOTE 16 -- SHAREHOLDER
PROTECTION RIGHTS PLAN
On May 27, 1993, the Company's Board of Directors adopted a Shareholder
Protection Rights Plan (the Plan).
Under the terms of the Plan, one Preferred Share Purchase Right (Right) is
attached to each share of common stock and trades automatically with such
shares. The Rights, which can be redeemed by the Company's Board of Directors
in certain circumstances and expire by their terms on May 27, 2003, have no
voting rights.
The Rights become exercisable and will trade separately from the common
stock ten days after a person or a group either becomes the beneficial owner or
announces an intention to commence a tender offer for 25% or more of the
Company's outstanding common stock. When exercisable, each Right entitles the
registered holder to purchase from the Company 1/100th of a share of a new
series of Junior Participating Preferred Stock, Series D, substantially equal
to one share of common stock without voting rights, at an exercise price of
$37.50 per unit. In the event a person acquires beneficial ownership of 25% or
more of the Company's common stock, holders of Rights (other than the acquiring
person or group) may purchase, at the Rights' then current exercise price,
common stock or its equivalent of the Company having a value at that time equal
to twice the exercise price. In the event the Company merges into or otherwise
transfers 50% or more of its assets or earnings power to any person after the
Rights become exercisable, holders of Rights may purchase, at the then current
exercise price, common stock or its equivalent of the acquiring entity having a
value at that time equal to twice the exercise price.
NOTE 17 -- SUBSEQUENT EVENT
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 $8.5 million or two times PSB's
adjusted book value as of the closing date. The acquisition should be
completed in the third quarter of 1998, and it is subject to, among other
things, regulatory approval.
46
<PAGE> 49
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
DIRECTORS AND OFFICERS
SOUTHSIDE BANCSHARES CORP.
The name and principal occupation or employment of each director and
officer of Southside Bancshares Corp. and the name and principal business of
any organization by which such person is employed is set forth below:
<TABLE>
<CAPTION>
BOARD OF DIRECTORS
<S><C>
JOSEPH W. BEETZ NORVILLE K. MCCLAIN
President President
Joseph H. Beetz Plumbing Company, Inc. Essex Contracting, Inc.
Director Director
South Side National Bank in St. Louis South Side National Bank in St. Louis
RALPH CRANCER, JR. DANIEL J. QUEEN
Deputy Sheriff President
St. Louis County, Missouri Highland Diversified
Former President Director
South Side Furniture Co. South Side National Bank in St. Louis
Director Director
South Side National Bank in St. Louis State Bank of DeSoto
HOWARD F. ETLING RICHARD G. SCHROEDER, SR.
Publisher Emeritus President
Journal Newspaper St. Louis Fabrication Services, Inc.
Former President Director
South County Publications, Inc. South Side National Bank in St. Louis
Chairman of the Board THOMAS M. TESCHNER
Southside Bancshares Corp. President and Chief Executive Officer
Chairman of the Board Southside Bancshares Corp.
South Side National Bank in St. Louis President and Chief Executive Officer
DOUGLAS P. HELEIN South Side National Bank in St. Louis
Insurance Broker Director
Welsch, Flatness & Lutz, Inc. South Side National Bank in St. Louis
Director Director
South Side National Bank in St. Louis Bank of Ste. Genevieve
EARLE J. KENNEDY, JR. Director
Former President State Bank of DeSoto
Westway Services, Inc. Director
Former President The Bank of St. Charles County
Continental Boiler Works, Inc.
Director
South Side National Bank in St. Louis
OFFICERS
THOMAS M. TESCHNER
President and Chief LAURA L. THOMAS
Executive Officer CAROLE A. MATT Assistant Secretary to the Board
JOSEPH W. POPE Vice President/Compliance NEIL P. FINNEGAN
Senior Vice President and STEVEN D. VOSS Assistant Vice President/
Chief Financial Officer Vice President and Auditor Loan Review
DAVID J. ABELN JOANNE M. SCHNEIDER NANETTE M. BELLER
Vice President/Investments Secretary to the Board Assistant Auditor
</TABLE>
47
<PAGE> 50
The following is a summary description of the four subsidiary banks of
Southside Bancshares Corp.
SOUTH SIDE NATIONAL BANK IN ST. LOUIS
The main office of South Side National Bank in St. Louis is located at
3606 Gravois Avenue, St. Louis, Missouri 63116. Facilities are located at
3420 Iowa Street, St. Louis, Missouri 63118; 9914 Kennerly Road, St. Louis
County, Missouri 63128; 8440 Morganford, St. Louis County, Missouri 63123;
4666 Lansdowne, St. Louis, Missouri 63116; 10385 West Florissant, Ferguson,
Missouri 63136; and 11330 Gravois, St. Louis, Missouri 63126. A
24-hour automated teller machine is maintained at St. Anthony's Medical Center,
10010 Kennerly Road, St. Louis County, Missouri 63128. The Bank has 20
drive-in windows and eight 24-hour automated teller machines. The Bank is a
member of the Honor and CIRRUS automated teller networks. The Bank serves St.
Louis City and St. Louis County.
The total assets of the Bank at December 31, 1997 were $353,316,000.
Total deposits at December 31, 1997 were $309,297,000. Total loans at December
31, 1997 were $197,175,000.
BOARD OF DIRECTORS
HOWARD F. ETLING DOUGLAS P. HELEIN DANIEL J. QUEEN
Chairman of the Board EARLE J. KENNEDY, JR. RICHARD G. SCHROEDER, SR.
JOSEPH W. BEETZ NORVILLE K. MCCLAIN THOMAS M. TESCHNER
RALPH CRANCER, JR.
ADVISORY BOARD OF DIRECTORS
TIM DRURY GENE SCHWARTZ FLOYD E. WRIGHT
THOMAS H. ETLING FRANCIS G. SLACK THOMAS M. TESCHNER
SAMUEL D. ORLANDO, SR. MALCOLM J. SWEET, JR. JOSEPH S. WEINMANN
STEVEN C. ROBERTS
OFFICERS
<TABLE>
<S> <C> <C>
THOMAS M. TESCHNER ROBERT D. JOSEPH PAMELA A. HALE
President and Chief Executive Officer Vice President Assistant Vice President
WILLIAM E. MUHLKE COLETTE A. LETENDRE DOLORES G. HENSEL
Senior Vice President and Comptroller Vice President Assistant Vice President
LAURIE A. PENNYCOOK JUDI M. SCHULZ CONNIE HORNAK
Senior Vice President and Cashier Vice President Assistant Vice President
STEVEN L. RAY DONALD A. SEILER BRENDA L. HUDDLESTON
Senior Vice President and Senior Trust Officer Vice President Assistant Vice President
MARK D. SKORNIA JOHN R. SHIVERS D. MICHAEL MINOR
Senior Vice President and Senior Loan Officer Vice President Assistant Vice President
KENNETH E. MARSCHUETZ JEFFERY M. BERRY ROLAND G. SPIES
Senior Vice President Assistant Vice President Assistant Vice President
JOSEPH W. POPE ANNA SMITH-CRAFT PAUL L. STEUBE
Senior Vice President Assistant Vice President Assistant Vice President
CAROLE A. MATT GAIL R. DICKSON JACQUELINE A. YOCHIM
Vice President and Compliance Officer Assistant Vice President Assistant Vice President
DAVID J. ABELND. SUE DOERING WENDY HAMILTON
Vice President/Investments Assistant Vice President Marketing Officer
RAYMOND H. BAYER BETTY J. DUNSCOMBE SHARON MOORE
Vice President Assistant Vice President Data Processing Officer
MARK D. CHAPMAN CRISTA ELLIOTT GLENDA L. POPPLETON
Vice President/Human Resources Assistant Vice President Loan Administration Officer
JAMES A. DEGUIRE DONNA M. FELDMANN SUSAN SUN
Vice President Assistant Vice President Community Banking Officer
BARBARA E. GLIEDT LISA M. FRICK JOANNE M. SCHNEIDER
Vice President Assistant Vice President Secretary to the Board
CYNTHIA L. GOLDSCHMIDT LAURA L. THOMAS
Assistant Vice President Assistant Secretary to the Board
DANNY C. GRAHAM
Assistant Vice President
</TABLE>
48
<PAGE> 51
STATE BANK OF JEFFERSON COUNTY
The main office of State Bank of Jefferson County is located at 224 S.
Main Street, DeSoto, Missouri 63020, and a facility is located at 2000 Rock
Road, DeSoto, Missouri 63020. The Bank has two drive-in windows at each
location and a 24-hour automated teller machine at the Rock Road facility. The
Bank is a member of the Honor and CIRRUS automated teller networks. The Bank
serves Jefferson County, part of Franklin County, Washington County, and St.
Francois County.
The total assets of the Bank at December 31, 1997 were $57,683,000. Total
deposits at December 31, 1997 were $51,533,000. Total loans at December 31,
1997 were $41,377,000.
<TABLE>
<S><C>
BOARD OF DIRECTORS
ROBERT G. PURCELL CLARENCE M. JONES
Chairman of the Board KENNETH MCCLAIN
CLAUDE J. COOK DANIEL J. QUEEN
PAUL F. DICKINSON STEVAN H. ROWE
RICHARD B. FRANCIS THOMAS M. TESCHNER
OFFICERS
RICHARD B. FRANCIS ANN GAMBER DIANE HUMPHREY
President and Chief Compliance Officer Assistant Cashier
Executive Officer KEVIN L. BOREN ELAINE WATTERS
MARGARET A. ARMBRUSTER Assistant Vice President Assistant Cashier
Vice President PHYLLIS POOLE PAULINE WILLIAMSON
BARBARA A. DONTRICH Assistant Vice President Assistant Cashier
Vice President, Cashier, and and Secretary to the Board
Security Officer
</TABLE>
BANK OF STE. GENEVIEVE
The main office of Bank of Ste. Genevieve is located at 198 Market Street
in Ste. Genevieve, Missouri 63670, and a facility, Plaza Bank, is located at
710 Parkwood Drive in Ste. Genevieve, Missouri 63670. The Bank has two
drive-in windows at the main office and three drive-in windows and two 24-hour
automated teller machines at the Plaza Bank location and the Family Inn
Restaurant, 17050 Bremen Road, Ste, Genevieve, Missouri 63670. The Bank is a
member of the CIRRUS and Shazam automated teller networks. The Bank serves
Ste. Genevieve County.
The total assets of the Bank at December 31, 1997 were $84,805,000. Total
deposits at December 31, 1997 were $74,627,000. Total loans at December 31,
1997 were $55,005,000.
<TABLE>
<S><C>
BOARD OF DIRECTORS
HAROLD J. UDING CLARENCE J. KERTZ
Chairman of the Board ROY J. PANCHOT
PATRICK J. UDING KENNETH J. REHM
Secretary to the Board THOMAS M. TESCHNER
GERALD J. TRAUTMAN
OFFICERS
PATRICK J. UDING JERRY V. BERGTHOLDT GARY D. FISCHER
President & Chief Executive Officer Assistant Vice President Vice President
WILLIAM E. MILES and Security Officer MARY ANN BAUMAN
Senior Vice President and MONICA J. KREITLER Assistant Cashier
CRA Officer Assistant Vice MARY ELLEN CABRAL
STEPHEN J. ABTS President and Executive Secretary
Vice President and Cashier Compliance Officer
</TABLE>
49
<PAGE> 52
THE BANK OF ST. CHARLES COUNTY
The main office of The Bank of St. Charles County is located at 6004
Highway 94 South, Weldon Springs, Missouri 63304, and a facility is located at
750 First Capitol Drive, St. Charles, Missouri 63301. The Bank has a 24-hour
automated teller machine at each location, three drive-in windows in Weldon
Spring, and one drive-in window at 750 First Capitol Drive. The Bank is a
member of the Honor and CIRRUS automated teller networks. The Bank services
St. Charles County.
The total assets of the Bank at December 31, 1997 were $54,120,000. Total
deposits at December 31, 1997 were $49,311,000. Total loans at December 31,
1997 were $34,461,000
<TABLE>
<S><C>
BOARD OF DIRECTORS
LARRY RICHARDSON FREDERICK W. DRAKESMITH
Chairman of the Board WILLIAM O. MULLINS
TERRY E. ALEXANDER ALAN D. POHLMAN
MAX E. MCGOWAN THOMAS M. TESCHNER
TED E. GLOSIER
OFFICERS
ALAN D. POHLMAN JUDY M. BRADY LARRY W. NOLTE
President and Chief Vice President and Assistant Vice President
Executive Officer Security Officer SUSAN P. FLEMING
CRAIG D. WOOD JAMIE TATRO Assistant Vice President
Senior Vice President, Cashier, and Assistant Vice President and MARK H. KNOBLAUCH
Secretary to the Board Compliance Officer Assistant Vice President
DON R. HAYNES
Vice President
</TABLE>
50
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
SUBSIDIARY JURISDICTION OF INCORPORATION
----------- -----------------------------
South Side National Bank in St. Louis National bank
State Bank of Jefferson County Missouri state bank
Bank of Ste. Genevieve Missouri state bank
The Bank of St. Charles County Missouri state bank
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Southside Bancshares Corp.:
We consent to incorporation by reference in the Registration Statements
on Form S-8 (No. 33-78454 and No. 333-00579) of Southside Bancshares Corp. of
our report dated February 25, 1998, relating to the consolidated balance sheets
of Southside Bancshares Corp. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of Southside Bancshares Corp.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHSIDE
BANCSHARES CORP'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH DOCUMENT.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,302
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,460
<INVESTMENTS-CARRYING> 99,679
<INVESTMENTS-MARKET> 100,838
<LOANS> 326,437
<ALLOWANCE> 6,120
<TOTAL-ASSETS> 549,864
<DEPOSITS> 483,363
<SHORT-TERM> 5,333
<LIABILITIES-OTHER> 4,515
<LONG-TERM> 0
0
0
<COMMON> 2,859
<OTHER-SE> 53,794
<TOTAL-LIABILITIES-AND-EQUITY> 549,864
<INTEREST-LOAN> 27,717
<INTEREST-INVEST> 10,767
<INTEREST-OTHER> 871
<INTEREST-TOTAL> 39,355
<INTEREST-DEPOSIT> 17,910
<INTEREST-EXPENSE> 18,243
<INTEREST-INCOME-NET> 21,112
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,239
<INCOME-PRETAX> 8,610
<INCOME-PRE-EXTRAORDINARY> 8,610
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,302
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 4.34
<LOANS-NON> 2,977
<LOANS-PAST> 517
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,602
<CHARGE-OFFS> 367
<RECOVERIES> 825
<ALLOWANCE-CLOSE> 6,120
<ALLOWANCE-DOMESTIC> 6,120
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
