<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 0-10849
SOUTHSIDE BANCSHARES CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MISSOURI 43-1262037
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
3606 GRAVOIS AVENUE, ST. LOUIS, MISSOURI 63116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 776-7000
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
At NOVEMBER 12, 1998 , the number of shares outstanding of the
registrant's common stock was 2,897,286 .
<PAGE> 2
SOUTHSIDE BANCSHARES CORP.
INDEX
<TABLE>
PAGE
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income for
the nine months and three months ended
September 30, 1998 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and September 30,
1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantative and Qualitative Disclosures
Regarding Market Risk - There have been no material changes
from the information provided in the 12/31/97 Annual Report on
Form 10-K
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1998 1997
ASSETS ------------- -----------
<S> <C> <C>
Cash and due from banks $ 16,431 $ 18,302
Due from banks-interest bearing 3,868 --
Federal funds sold 13,425 17,200
Investments in debt securities:
Available-for-sale, at market value 97,741 73,460
Held-to-maturity, at amortized cost
(approximate market value of $99,228
in 1998, and $100,838 in 1997) 97,289 99,679
--------- ---------
Total investments in debt securities 195,030 173,139
--------- ---------
Loans, net of unearned discount 364,127 326,437
Less allowance for possible loan losses 6,222 6,120
--------- ---------
Loans, net 357,905 320,317
--------- ---------
Bank premises and equipment 15,260 10,866
Other assets 13,802 10,040
--------- ---------
TOTAL ASSETS $ 615,721 $ 549,864
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 64,884 $ 61,308
Interest-bearing demand and savings 213,480 195,804
Time deposits 250,640 226,251
---------
Total deposits 529,004 483,363
Securities sold under agreements to repurchase 1,270 5,333
FHLB borrowings 16,328 -
Other liabilities 4,591 4,515
--------- ---------
Total liabilities 551,193 493,211
========= =========
Commitments and contingent liabilities
Shareholders' equity:
Cumulative preferred stock, no par value, 1,000,000 shares
authorized and unissued -- --
Common stock, $1 par value, 15,000,000 shares authorized,
2,995,126 shares issued and outstanding in 1998 and
2,859,010 in 1997 2,995 2,859
Surplus 11,173 6,023
Retained earnings 54,237 50,841
Unearned employee stock ownership plan shares (1,235) (1,384)
Treasury stock, at cost, 97,840 and 61,340 shares, respectively (3,167) (1,820)
Other comprehensive income 525 134
--------- ---------
Total shareholders' equity 64,528 56,653
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 615,721 $ 549,864
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 22,347 $ 20,388 $ 8,051 $ 7,090
Interest on investments in debt securities:
Taxable 6,897 7,233 2,393 2,332
Exempt from Federal income taxes 1,119 947 423 329
Interest on short-term investments 1,001 602 409 232
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 31,364 29,170 11,276 9,983
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on interest-bearing demand and savings deposits 4,879 4,324 1,739 1,468
Interest on time deposits 9,421 9,024 3,432 3,083
Interest on securities sold under agreements to repurchase 124 158 22 72
Interest on FHLB borrowings 372 - 279 -
Interest on debt of employee stock ownership plan - 105 - 34
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 14,796 13,611 5,472 4,657
---------- ---------- ---------- ----------
NET INTEREST INCOME 16,568 15,559 5,804 5,326
Provision for possible loan losses 47 45 17 15
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 16,521 15,514 5,787 5,311
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Trust department 828 749 290 244
Service charges on deposit accounts 979 988 340 338
Gains on sales of loans 245 22 186 15
Net losses on sale of other real estate
owned and other foreclosed property (15) (26) (30) (4)
Other 410 369 133 113
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 2,447 2,102 919 706
---------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 6,135 5,597 2,151 1,913
Net occupancy and equipment expense 1,661 1,816 581 624
Data processing 400 343 169 114
Other 3,711 3,526 1,392 1,220
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSES 11,907 11,282 4,293 3,871
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 7,061 6,334 2,413 2,146
Federal income tax expense 1,937 1,680 649 571
---------- ---------- ---------- ----------
NET INCOME $ 5,124 $ 4,654 $1,764 $ 1,575
---------- ---------- ---------- ----------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains on available-for-sale securities 391 272 459 211
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME $5,515 $4,926 $2,223 $1,786
========== ========== ========== ==========
SHARE DATA:
Earnings per common share - basic $1.86 $1.70 $0.62 $0.57
========== ========== ========== ==========
Earnings per share - diluted $1.81 $1.66 $0.61 $0.56
========== ========== ========== ==========
Dividends paid per common share $0.63 $0.51 $0.22 $0.18
========== ========== ========== ==========
Average common shares outstanding 2,749,042 2,739,926 2,832,652 2,742,181
========== ========== ========== ==========
Average common shares outstanding
including potentially diluted shares 2,827,587 2,797,160 2,906,993 2,819,553
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,124 $ 4,654
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,146 1,146
Provision for possible loan losses 47 45
Other operating activities, net (1,468) (255)
-------- --------
Total adjustments (275) 936
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,849 5,590
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase (decrease) in Federal funds sold 3,775 (500)
Proceeds from maturities of and principal payments
on debt securities 46,290 37,849
Purchases of debt securities (57,562) (22,891)
Net decrease (increase) in loans 8,136 (26,276)
Recoveries of loans previously charged off 233 745
Proceeds from sales of other real estate owned and
other foreclosed property 188 232
Cash and cash equivalents acquired, net of cash paid 8,238 --
Purchases of bank premises and equipment (3,258) (963)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,040 (11,804)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 5,588 345
Net (decrease) increase in time deposits (15,210) 3,627
Net (decrease) increase in securities sold under agreements to repurchase (4,063) 3,730
Net increase in FHLB borrowings 7,958 --
Payments to acquire treasury stock (1,437) (387)
Cash dividends paid (1,728) (1,396)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (8,892) 5,919
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,997 (295)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,302 17,156
-------- --------
CASH AND CASH EQUIVALENTS, END OF QUARTER $ 20,299 $ 16,861
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 14,771 $ 13,307
Income taxes 2,176 2,010
======== ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans $ 57 $ 389
Issuance of stock in financing of acquisition 5,178 --
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principles for complete consolidated
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. For further information, refer to Southside Bancshares Corp.'s
(the Company) Annual Report on Form 10-K for the year ended December 31, 1997.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
The Company adopted the provisions of Statement on Financial Accounting
Standards (SFAS) No. 130-Reporting Comprehensive Income (SFAS 130) retroactively
on January 1, 1998. SFAS 130 established standards for reporting and displaying
income and its components (revenues, gains and losses) in a full set of general
purpose financial statements. The statement requires all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comparative financial statements
provided for earlier periods have been restated to reflect the application of
SFAS 130. The implementation of SFAS 130 did not have a material impact on the
Company's consolidated financial statements. The Company's only source of other
comprehensive income is unrealized gains or losses on available-for-sale
securities. The accumulated effect of such comprehensive income is included in
shareholders' equity in the consolidated financial statements.
6
<PAGE> 7
1. ACQUISITION
On June 29, 1998, the Company acquired Public Service Bank, FSB (PSB)
and merged PSB into the Company's subsidiary bank, South Side National Bank in
St. Louis. As of June 29, 1998, PSB had total assets of $73,731,000, total loans
of $46,318,000, and total deposits of $55,264,000. PSB has three offices in the
St. Louis metropolitan area. The Company paid approximately $3,455,000 in cash
and 136,116 shares of common stock to acquire PSB, in a transaction accounted
for under the purchase method of accounting. The excess of the purchase price
over the fair market value of the assets acquired, approximately $3,500,000, is
included in the total of other assets on the Company's consolidated financial
statements.
The following information presents the actual results for the three
months ended September 30, 1998 and unaudited pro forma condensed results of
operations of the Company for the three months ended September 30, 1997 and the
nine months ended September 30, 1998 and 1997, combined with the acquisition of
PSB, as if the Company completed the transaction on January 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except share data)
Actual Pro forma
------ -----------------------------------------
<S> <C> <C> <C> <C>
Net interest income..................................................... $5,804 $5,769 $17,453 $16,838
Provision for possible loan losses...................................... 17 31 59 73
Net income.............................................................. $1,764 $1,595 $5,227 $4,697
========= ========= ========== =========
Average shares of outstanding........................................... 2,832,652 2,878,297 2,885,158 2,876,042
========= ========= ========= =========
Average shares outstanding, including potentially dilutive shares....... 2,906,993 2,955,669 2,963,703 2,933,276
========= ========= ========== =========
Earnings per common share:
Basic.......................................................... $.62 $.55 $1.81 $1.63
========= ========= ========== =========
Diluted........................................................ $.61 $.54 $1.76 $1.60
========= ========= ========== =========
</TABLE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting for PSB and certain other
assumptions. Purchase accounting adjustments have been applied to investment
securities, bank premises and equipment, deferred tax assets and liabilities and
excess cost required to reflect the assets acquired and liabilities assumed at
fair value. The resulting premiums and discounts are amortized or accreted to
income consistent with the accounting policies of the Company.
2. EARNINGS PER SHARE
Effective with the fiscal year ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 (SFAS No. 128). SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of stock options. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. The weighted average number of shares used in computing diluted
earnings per share was impacted only by stock options outstanding for all
periods presented.
7
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion is presented to provide an understanding of Southside
Bancshares Corp. and subsidiaries (the "Company" or "Registrant") consolidated
financial condition and the results of operations for the nine months ended
September 30, 1998 and 1997.
The Company's net income is derived primarily from the net interest
income of its subsidiary banks. Net interest income is the difference (or
spread) between the interest income the subsidiary banks receive from their loan
and investment portfolios and their cost of funds, consisting primarily of the
interest paid on deposits and borrowings. Net income is also affected by the
levels of provisions for possible loan losses, noninterest income, and
noninterest expense.
Statements contained in this Report and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of
1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended). Such statements are based on management's beliefs, and assumptions
made by and information currently available to management and are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those currently anticipated or
projected. When used in the Company's documents or oral presentations, the words
"anticipates," "believes," "estimates," "expects," "intends," "forecasts,"
"plan," "projects," and similar expressions are intended to identify such
forward-looking statements. There can be no assurance that such forward-looking
statements will in fact transpire. The following important factors, risks and
uncertainties, among others, could cause actual results to differ materially
from such forward-looking statements: (1) credit risk, (2) interest rate risk,
(3) competition, (4) changes in the regulatory environment and (5) changes in
general business and economic trends. The foregoing list should not be construed
as exhaustive and the Company disclaims any obligation to subsequently update or
revise any forward-looking statements after the date of this Report.
8
<PAGE> 9
Item 2. (continued)
FINANCIAL HIGHLIGHTS
COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED Twelve Months Ended Nine Months Ended
SEPTEMBER 30, 1998 December 31, 1997 September 30, 1997
------------------ ------------------- -------------------
EARNINGS
<S> <C> <C> <C>
Total interest income $ 31,364 $ 39,320 $ 29,170
Total interest expense 14,796 18,243 13,611
--------- --------- ---------
Net interest income 16,568 21,077 15,559
Provision for possible loan losses 47 60 45
--------- --------- ---------
Net interest income after provision for
possible loan losses $ 16,521 $21,017 $ 15,514
========= ========= =========
Net income $ 5,124 $6,302 $ 4,654
========= ========= =========
SHARE DATA
Earning per common share:
Basic $ 1.86 $ 2.30 $ 1.70
Diluted 1.81 2.25 1.66
Dividends paid per common share .63 .70 .51
Book value 22.88 20.90 20.57
Tangible book value 21.54 20.81 20.47
Shares outstanding (period-end)(1) 2,897,286 2,797,670 2,825,670
Average shares outstanding 2,749,042 2,735,859 2,739,926
Average shares outstanding, including
potentially dilutive shares 2,827,587 2,798,105 2,797,160
FINANCIAL POSITION
Total assets $ 615,721 $ 549,864 $ 537,468
Total deposits 529,004 483,363 471,248
Total loans, net of unearned discount 364,127 326,437 318,883
Allowance for possible loan losses 6,222 6,120 6,117
Goodwill 3,643 240 259
Short-term borrowings 1,270 5,333 5,353
FHLB borrowings 16,328 - -
Total shareholders' equity 64,528 56,653 56,278
</TABLE>
SELECTED RATIOS
The table below summarizes various selected ratios as of the end of the periods
indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED Twelve Months Ended Nine Months Ended
SEPTEMBER 30, 1998(2) December 31, 1997 September 30, 1997(2)
------------------- ------------------- ---------------------
<S> <C> <C> <C>
Loan-to-deposit ratio 68.83% 67.53% 67.67%
Allowance for possible loan losses to total loans 1.71 1.87 1.92
Dividend payout ratio(3) 33.87 30.43 30.00
Return on average assets 1.18 1.18 1.16
Return on average shareholders' equity 11.33 11.44 11.36
Net interest margin on average interest-
earning assets 4.25 4.34 4.30
Average shareholders' equity to average total
assets 10.42 10.28 10.24
Tier I leverage capital to adjusted total
consolidated assets less intangibles 9.66 10.34 10.40
Tier I capital to risk-weighted assets 16.04 16.12 16.49
Total capital to risk-weighted assets 17.29 17.38 17.74
</TABLE>
(1) Shares outstanding at September 30, 1998, December 31, 1997, and September
30, 1997 include 77,212, 86,478, 89,567 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. These unallocated shares are also excluded from the average
shares outstanding used to compute earnings per common share.
(2) Statistical information is annualized where applicable.
(3) Dividends paid per common share divided by basic earnings per common share.
9
<PAGE> 10
Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company have increased $65,857,000
during 1998 to $615,721,000 at September 30, 1998 compared to $549,864,000 at
December 31, 1997. This increase is attributable to the PSB acquisition.
LOAN PORTFOLIO
The Company's loan portfolio consists of business loans to small and
medium size companies, commercial, construction and residential real estate
loans, and consumer loans. Traditionally, the majority of the loan portfolio has
focused on real estate as an integral component of a credit's underlying source
of collateral. The following table is a breakdown of the Company's loan
portfolio as of the end of the periods indicated.
<TABLE>
<CAPTION>
(in thousands)
SEPTEMBER 30, 1998 December 31, 1997 September 30, 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 67,991 $ 69,168 $ 68,740
Real estate-commercial 97,598 98,759 90,655
Real estate-construction 32,481 30,836 28,485
Real estate-residential 131,257 92,028 94,539
Consumer 23,915 23,627 25,776
Industrial revenue bonds 4,935 5,517 5,943
Other 5,950 6,502 4,745
-------- -------- --------
$364,127 $326,437 $318,883
======== ======== ========
</TABLE>
The Company's loan portfolio totaled $364,127,000 at September 30,
1998, which represents an increase of $37,690,000, or 11.5%, since December 31,
1997. The loan growth was due to the acquisition of PSB during the second
quarter of 1998, which included $46,318,000 in loans, which were primarily
residential real estate loans. Excluding the PSB loans acquired, total loans
have decreased by $8,628,000 during 1998. The majority of this decline was in
the Company's existing residential real estate loan portfolio, as borrowers
continued to seek long term fixed rate refinancing alternatives in the secondary
mortgage market. The Company viewed both PSB's residential real estate loan
portfolio and their secondary market mortgage operation as valuable components
of the acquisition, which compliment the Company's current balance sheet
structure and operating philosophy.
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(in thousands)
NINE MONTHS ENDED Twelve Months Ended Nine Months Ended
SEPTEMBER 30, 1998 December 31, 1997 September 30, 1997
------------------ ------------------- ------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 6,120 $ 5,602 $ 5,602
Provision charged to expense 47 60 45
Loans charged off (435) (367) (275)
Recoveries 233 825 745
Balance of allowance for possible loan
losses of PSB at date of acquisition 257 -- --
------- ------- -------
BALANCE AT END OF PERIOD $ 6,222 $ 6,120 $ 6,117
======= ======= =======
</TABLE>
The balance of the allowance for possible loan losses increased by
$102,000 during the first nine months of 1998, primarily as a result of the PSB
acquisition. In addition, the Company has recorded provisions for possible loan
losses during the first nine months of $47,000. Based upon the Company's
internal analysis of the adequacy of the allowance for possible loan losses,
management of the Company believes the level is adequate to cover actual and
potential losses in the loan portfolio under current conditions. The ratio of
allowance for possible loan losses as a percentage of total loans was 1.71% as
of September 30, 1998 compared to 1.87% and 1.92% at December 31, 1997 and
September 30, 1997, respectively. The reduction as of September 30, 1998
reflects the addition of the residential portfolio of PSB.
10
<PAGE> 11
Item 2. (continued)
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(dollars in thousands)
SEPTEMBER 30, 1998 December 31, 1997 September 30, 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Nonaccrual loans $ 2,726 $ 2,977 $ 3,279
Loans past due 90 days or more and still
accruing interest 2,404 517 670
------- ------- -------
TOTAL NONPERFORMING LOANS 5,130 3,494 3,949
Other real estate owned 1,013 1,024 991
------- ------- -------
TOTAL NONPERFORMING ASSETS $ 6,143 $ 4,518 $ 4,940
======= ======= =======
RATIOS:
Total nonperforming loans as % of total loans 1.41% 1.07% 1.24%
Nonperforming assets as % of total loans and
other real estate owned 1.68 1.38 1.54
Nonperforming assets as % of total assets 1.00 0.82 0.92
</TABLE>
Nonperforming assets totaled $6,143,000 or 1.00% of total assets at
September 30, 1998 compared to $4,518,000 or 0.82% and $4,940,000 or 0.92% at
December 31, 1997 and September 30, 1997, respectively. Fluctuations in the
level of nonperforming assets are a normal part of the Company's business,
however, management is cognizant of the need to continually ensure that
nonperforming assets remain at acceptably low levels.
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 measurements 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 September 30, 1998, there were no concentrations of
loans exceeding 10% of total loans which were not disclosed as a category of
loans detailed on the previous page.
INVESTMENTS IN DEBT SECURITIES
Investments in debt securities have increased $21,891,000 since
December 31, 1997 due in part to the PSB acquisition, which included $10,226,000
in investment securities. The remainder of the increase was attributable to a
return on equity enhancement strategy employed by the Company's lead bank. To
utilize a portion of the bank's excess capital capacity, the bank borrowed
approximately $10,000,000 in FHLB advances to fund the purchase of
mortgage-backed and municipal securities. Overall, the investment portfolio
contains a mixture of debt securities in terms of the types of securities,
interest rates, and maturity distribution. Management believes this diversity,
as well as its conservative philosophy towards risk management, has resulted in
a stable investment portfolio.
11
<PAGE> 12
Item 2. (continued)
DEPOSITS
Total deposits increased $45,641,000 during the first nine months of
1998 as a result of the PSB acquisition during the second quarter of 1998, which
included $55,264,000 in deposits. Excluding the PSB deposits acquired, total
deposits have declined $9,623,000 for the year. This decline is largely the
result of the Company's subsidiary banks being less aggressive with respect to
the interest rates being paid on deposits than some of their competitors.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (REPOs) declined
$4,063,000 during the first nine months of 1998, due to normal daily
fluctuations in the balances of the underlying accounts. The majority of the
Company's REPOs are used by larger commercial customers as a daily cash
management tool, therefore, depending on their individual liquidity positions,
the balances in these accounts can vary considerably.
FHLB BORROWINGS
The $16,328,000 increase in FHLB borrowings was due in part to FHLB
borrowings acquired as part of the PSB acquisition. In addition, $10,000,000 of
FHLB borrowings was obtained as part of the aforementioned return on equity
enhancement strategy. The remainder of the borrowings are being used by one of
the Company's subsidiary banks to help in funding longer term fixed rate
residential real estate loans. This program allows the bank to offer rates
competitive to those offered by secondary-market mortgage operations, with the
added benefit of letting the customer know their loan will not be sold or the
servicing transferred several times over the life of the loan.
12
<PAGE> 13
Item 2. (continued)
ASSET/LIABILITY MANAGEMENT
As reflected on the Repricing and Interest Rate Sensitivity Analysis
below, the Company has a reasonably well-balanced interest rate sensitivity
position. The Company's current one-year cumulative gap is 1.08x. Generally, a
one-year cumulative gap ratio in a range of 0.80x - 1.20x indicates an entity is
not subject to undue interest rate risk. A one-year cumulative gap ratio of
1.00x indicates that an institution has an equal amount of assets and
liabilities repricing within twelve months. A ratio in excess of 1.00x indicates
more assets than liabilities will be repriced during the period indicated, and a
ratio less than 1.00x indicates more liabilities than assets will be repriced
during the period indicated. However, actual experience may differ because of
the assumptions used in the allocation of deposits and other factors which are
beyond management's control. Additionally, the following analysis includes the
available-for-sale securities spread throughout their respective repricing
and/or maturity horizons, even though such securities are available for
immediate liquidity should the need arise in any particular time horizon.
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Over Over
3 months 1 year
3 months through through Over
or less 12 months 5 Years 5 year Total
-------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing due from banks $ 3,868 $ -- $ -- $ -- $ 3,868
Federal funds sold 13,425 -- -- -- 13,425
Investments available-for-sale 15,421 22,005 41,908 18,407 97,741
Investments held-to-maturity 8,647 16,142 50,085 22,415 97,289
Loans, net of unearned discount (1) 185,356 60,487 80,370 37,914 364,127
--------- --------- -------- -------- --------
Total interest-earning assets 226,717 98,634 172,363 78,736 576,450
--------- --------- -------- -------- --------
Cumulative interest-earning assets 226,717 325,351 497,714 576,450 576,450
--------- --------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 52,042 29,738 37,174 29,738 148,692
Savings deposits 22,676 12,958 16,197 12,957 64,788
Time deposits under $100,000 45,029 89,855 65,507 -- 200,391
Time deposits $100,000 and over 12,818 33,108 4,323 -- 50,249
Securities sold under agreements to repurchase 1,270 -- -- -- 1,270
FHLB borrowings -- 2,000 14,328 -- 16,328
--------- --------- -------- -------- --------
Total interest-bearing liabilities 133,835 167,659 137,529 42,695 481,718
--------- --------- -------- -------- --------
Cumulative interest-bearing liabilities 133,835 301,494 439,023 481,718 481,718
--------- --------- -------- -------- --------
Gap analysis:
Interest sensitivity gap $ 92,882 $(69,025) $ 34,834 $ 36,041 $ 94,732
========= ======== ======== ======== ========
Cumulative interest
sensitivity gap $ 92,882 $ 23,857 $ 58,691 $ 94,732 $ 94,732
========= ========= ======== ======== ========
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.69x 1.08x 1.13x 1.20x 1.20x
========== ========== ========= ========= =========
</TABLE>
(1) Nonaccrual loans are reported in the "Over 1 year through 5 years" column.
13
<PAGE> 14
Item 2. (continued)
CAPITAL RESOURCES
The regulatory capital guidelines require banking organizations to
maintain a minimum total capital ratio of 8% of risk-weighted assets (of which
at least 4% must be Tier I capital). The Company's total capital ratios under
the risk-weighted guidelines were 17.29%, 17.38% and 17.74% as of September 30,
1998, December 31, 1997, and September 30, 1997, respectively, which included
Tier I capital ratios of 16.04%, 16.12%, and 16.49%, respectively. These ratios
are well above the minimum risk-weighted capital requirements.
In addition, the Company and its subsidiary banks must maintain a
minimum Tier I leverage ratio (Tier I capital to total adjusted consolidated
assets) of at least 3%. Capital, as defined under these guidelines, is total
shareholders' equity less goodwill and excluding unrealized gains and losses on
available-for-sale securities. The Company's Tier I leverage ratios were 9.66%,
10.34%, and 10.40% at September 30, 1998, December 31, 1997, and September 30,
1997, respectively.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $5,124,000 for the nine months ended September 30, 1998
compared to $4,654,000 for the nine months ended September 30, 1997, which
represents a $470,000 or 10% increase over the prior year. The increase was
largely due to the net effect of increases in net interest income and
noninterest income, partially offset by an increase in noninterest expense. Net
income for the third quarter of 1998 was $1,764,000 compared to $1,575,000 in
the third quarter of 1997. This increase in third quarter earnings was
attributable to the same factors that affected the year-to-date earnings.
Basic earnings per common share were $1.86 for the first nine months of
1998 compared to $1.70 for the first nine months of 1997, and the basic earnings
per common share were $0.62 and $0.57 for the third quarter of 1998 and 1997,
respectively. Net income for the first nine months of 1998 resulted in an
annualized return on average assets (ROA) of 1.18% compared to 1.16% in the
prior year, and an annualized return on average shareholders' equity (ROE) of
11.33% compared to 11.36% in the prior year. ROE continues to be negatively
impacted by the Company's strong equity position, however, management continues
to take steps to utilize the Company's excess capital.
NET INTEREST INCOME
As reflected in the Selected Statistical Information table on the
following page, net interest income on a tax-equivalent basis increased by
$1,049,000 in the first nine months of 1998 when compared to the first nine
months of 1997. The increase in net interest income was largely the result of an
increase in average earning assets which were $38,407,000 larger in 1998 versus
1997. The majority of this increase was in the average balance of loans
outstanding, which increased $29,316,000. This increase was largely due to the
acquisition of PSB. Also contributing to the increase was the fact that the
Company's net interest margin declined only slightly during 1998. The five basis
point decrease in the net interest margin was due to an increase in the
Company's cost of funds resulting from the increasingly competitive market for
consumer deposits. Net interest income for the third quarter increased by
$478,000 in 1998 compared to the third quarter of 1997. This increase was also
largely attributable to loan growth resulting from the PSB acquisition.
14
<PAGE> 15
Item 2. (continued)
SELECTED STATISTICAL INFORMATION
The following is selected statistical information for Southside Bancshares Corp.
and subsidiaries.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE INTEREST RATES
(dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE Average
INTEREST RATES Interest Rates
AVERAGE INCOME\ EARNED\ Average Income\ Earned\
BALANCE EXPENSE PAID(3) Balance Expense Paid(3)
------- ------- ------- ------- --------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned discount(1)(2)(3) $336,434 $22,488 8.91% $307,118 $20,577 8.93%
Investments in debt securities:
Taxable(4) 152,492 6,897 6.03 158,854 7,233 6.07
Exempt from Federal income tax(3)(4) 27,989 1,695 8.08 22,775 1,435 8.40
Short-term investments 25,259 1,001 5.28 15,020 602 5.34
-------- ------- ---- -------- ------- ----
Total interest-earning assets/interest
income/overall yield (3) 542,174 32,081 7.89 503,767 29,847 7.90
------- ---- ------- ----
Allowance for possible loan losses (6,142) (6,034)
Cash and due from banks 15,564 14,695
Other assets 26,594 20,647
-------- --------
TOTAL ASSETS $578,190 $533,075
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings deposits $205,543 4,879 3.16% $187,399 4,324 3.08%
Time deposits 233,768 9,421 5.37 225,731 9,024 5.33
Short-term borrowings 3,721 124 4.44 4,730 158 4.45
Other borrowings 8,699 372 5.70 -- -- --
Debt of employee stock ownership plan -- -- -- 1,657 105 8.45
-------- ------- -------- ------- ----
Total interest-bearing liabilities/interest-
expense/overall rate 451,731 14,796 4.37 419,517 13,611 4.33
------- ---- ------- ----
Non-interest-bearing demand deposits 60,715 54,944
Other liabilities 5,470 4,003
Shareholders' equity 60,274 54,611
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $578,190 $533,075
======== ========
NET INTEREST INCOME $17,285 $16,236
------- -------
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING
ASSETS 4.25% 4.30%
---- ----
</TABLE>
(1) Interest income includes loan origination fees.
(2) Average balance includes nonaccrual loans.
(3) Interest yields are presented on a tax-equivalent basis.
(4) Includes investments available-for-sale.
15
<PAGE> 16
Item 2. (continued)
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses remained at a relatively low
level of $47,000 during the first nine months of 1998. Based on the Company's
analysis of the adequacy of the allowance for possible loan losses, management
determined it was not necessary to record significant provisions for possible
loan losses. Management will continue to assess the adequacy of the allowance
for possible loan losses on a regular basis throughout the year.
NONINTEREST INCOME
Noninterest income increased $345,000 during the first nine months of
1998 and $213,000 during the third quarter of 1998 in comparison to the
comparable periods in the prior year. These increases were largely attributable
to the Company's secondary market mortgage operations acquired as part of the
PSB acquisition. Gains on sales of loans increased from $22,000 in 1997 to
$245,000 in 1998, with the majority of the growth occurring during the third
quarter. Noninterest income was also positively impacted by an increase in trust
department revenue.
NONINTEREST EXPENSE
Noninterest expense for the first nine months of 1998 increased
$625,000 when compared to the first nine months of the prior year, and $422,000
during the third quarter, primarily due to increases in salaries and employee
benefits. The increase in salaries and employee benefits expense was due, in
part, to normal pay increases, expense related to the Company's Employee Stock
Ownership Plan, and the addition of personnel as part of the PSB acquisition.
Also contributing to the increase in both the year-to-date and third quarter
expenses was an increase in data processing expense, which was the result of
year 2000 testing being performed at the Company's subsidiary banks. Partially
offsetting these increases was a decrease in net occupancy and equipment
expense, which was caused by an increase in rental income and a decrease in
depreciation of furniture and equipment, as several larger furniture and
equipment purchases became fully depreciated during 1998.
INCOME TAXES
Federal income tax expense for the first nine months of 1998 was
$1,937,000 compared to $1,680,000 in the first nine months of 1997. The
Company's effective tax rate was 27.43% for the first nine months of 1998,
compared to 26.52% for the first nine months of 1997. This increase is caused by
the fact that taxable income is increasing but the Company's tax-exempt income
from municipal securities and loans has remained relatively the same. As part of
the equity enhancement strategy, approximately half of the securities purchased
were municipal securities which should aid the Company in managing its effective
tax rate and has caused the Company's effective tax rate to decline slightly
since the second quarter of 1998.
THE YEAR 2000 ISSUE
The Year 2000 issue relates to systems that have used a two-digit field
rather than a four-digit field to represent the year. The risk of a system
failure and data processing errors may be the result of this programming logic.
Management has implemented a company-wide initiative for preparing its systems,
applications and equipment for functionality in the Year 2000 and beyond. The
Company's Year 2000 project consists of five phases including awareness,
assessment, renovation, testing and implementation are well underway.
The Company continues to monitor efforts to ready internal systems for
the Year 2000. Highest priority has been assigned to those systems determined to
be critical to the ongoing operations of the Company. Programming changes and
testing of critical systems, applications, and equipment are scheduled to be
substantially completed by December 31, 1998. If modifications to existing
systems and conversions to new systems proceed as scheduled, management
presently believes that the Year 2000 issue will not pose a substantial internal
operating risk to the Company.
The Company modified its credit risk assessment to include the
consideration of incremental risk that may be posed by customer's inability, if
any, to address Year 2000 issues. Management presently believes this risk to be
manageable, and continues to monitor customer's efforts to prepare for the Year
2000. Additionally, the Company has implemented a process for assessing the
readiness of its major vendors, suppliers and business partners. There can be no
guarantee, however, that
16
<PAGE> 17
Item 2. (continued)
the systems of these outside parties will be remediated on a timely basis. To
that end, there is no assurance that a failure to remediate by one of these
parties would not have a material adverse effect on the Company.
The Company believes it will substantially complete the implementation
of its Year 2000 program prior to the commencement of the Year 2000. However,
the risk of the system failures, either internal or external, cannot be
eliminated. Therefore, the Company intends to assess the worst case scenario
caused by Year 2000 issue and address the possible effects thereof. The Company
will assess the types and nature of contingency plans that will be required to
maintain the Company's operational capacity after January 1, 2000. Contingency
planning will cover all critical areas of the Company, as well as customers,
suppliers and business partners.
To date, the Company and its subsidiaries have incurred approximately
$150,000 in both direct and indirect costs associated with Year 2000 readiness
efforts. The Company estimates that $330,000 will approximate total expenditures
through the Year 2000. This includes internal and external costs that will be
expensed, as well as new hardware and software which will be capitalized.
Funding for costs associated with Year 2000 efforts will be derived from normal
operating cash flow. As a result, Year 2000 expenses are not expected to a have
a material effect on the Company's results of operations.
The foregoing discussion of Year 2000 issues is based on management's
most current estimates. These estimates utilize multiple assumptions of future
events, including, but not limited to, the continues availability of certain
resources, third party efforts, and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual costs and results
could differ materially from the estimates currently anticipated by the Company.
EFFECT OF NEW ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, Disclosures about Segments of an Enterprise on Related Information
(SFAS 131). SFAS 131 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
Additionally, SFAS 131 establishes standards for related disclosures about
products and services, geographical areas, and major customers superseding SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise. The Company
does not believe expanded disclosure information will be required to be included
in its consolidated financial statements beginning in 1998 because the Company
operates as one business segment.
SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
which was issued in June 1998, establishes accounting and reporting standards
for derivative instruments and hedging activities. Under SFAS 133, derivatives
are recognized on the balance sheet at fair value as an asset or liability.
Changes in the fair value of derivatives are reported as a component of other
comprehensive income or recognized as earnings through the income statement
depending on the nature of the instrument. SFAS 133 is effective for all
quarters of fiscal years beginning after June 15, 1999 with earlier adoption
permitted. The Company is currently evaluating SFAS 133's effect on its
consolidated financial statements.
17
<PAGE> 18
Item 2. (continued)
COMMON STOCK - MARKET PRICE AND DIVIDENDS
The table below sets forth the high, low and closing bid prices of the
Company's common stock for the periods presented. The Company's common stock is
traded on the National Association of Securities Dealers Automated Quotation
System/Small-Cap Market System ("NASDAQ/SCM") under the symbol SBCO.
Accordingly, information included below represents the high and low bid prices
of the common stock reported on NASDAQ/SCM.
<TABLE>
<CAPTION>
Book Dividends Paid Per
High Bid Low Bid Close Value Market/Book Common Share
-------- ------- ------- ------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
3RD QUARTER - 1998 $39.00 $33.50 $37.125 $22.88 162.26% $ 0.22
2nd Quarter - 1998 44.75 36.25 36.25 22.44 161.54 0.21
1st Quarter - 1998 37.75 34.25 37.75 21.33 176.98 0.20
4th Quarter - 1997 35.50 33.25 34.50 20.90 165.07 0.19
3rd Quarter - 1997 40.50 33.50 33.50 20.57 162.86 0.18
2nd Quarter - 1997 37.00 21.50 37.00 20.14 183.71 0.17
1st Quarter - 1997 25.00 22.75 24.50 19.60 125.00 0.16
</TABLE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company had certain routine
lawsuits pending at September 30, 1998. In the opinion of management, after
consultation with legal counsel, none of these lawsuits will have a material
adverse effect on the consolidated financial condition of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 10(c) - Deferred Compensation Agreement, as amended
Reports on 8-K
The Company filed a report on Form 8-K dated October 5, 1998, relating
to the Company's announcement of a three for one stock split, payable
on the form of a stock dividend of two shares of common stock for each
common share currently outstanding on November 15, 1998 to shareholders
of record November 2, 1998.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHSIDE BANCSHARES CORP.
November 12, 1998 /s/ Thomas M. Teschner
- ----------------- -------------------------------------------
Thomas M. Teschner
President
(Principal Executive Officer)
November 12, 1998 /s/ Joseph W. Pope
- ----------------- -------------------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller, and Principal
Accounting Officer)
19
<PAGE> 20
FORM 10-Q
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
10(c) Deferred Compensation Agreement, as amended
<PAGE> 1
EXHIBIT 10(C)
DEFERRED COMPENSATION AGREEMENT
This deferred compensation agreement ("Agreement") is made and entered
into this 25th day of April, 1996, by and between THOMAS M. TESCHNER
("Employee") and SOUTHSIDE BANCSHARES CORP., a Missouri Corporation ("Company").
RECITAL
Company desires to provide additional compensation to Employee in order
to offset certain limitations imposed upon Employee's participation in Company's
qualified deferred compensation plans from and after 1988.
AGREEMENT
In consideration of the foregoing, the mutual covenants herein
contained and other good and valuable consideration (the receipt, adequacy and
sufficiency of which are hereby acknowledged by the parties by their execution
hereof), the parties agree as follows:
1. Performance Stock. The compensation to be awarded under this Agreement will
be in the form of grants of "Performance Stock," which will be credited to a
"Performance Stock Account" to be maintained for Employee's benefit. The
Performance Stock Account will be maintained solely for accounting purposes and
will neither require nor permit a segregation of any Company assets. Performance
stock may be issued in whole and/or fractional shares. Each share of Performance
Stock will be deemed to be equivalent in value to one share of Company's common
stock as herein specified. An award of Performance Stock under this Agreement
constitutes a potential right to receive payment and does not confer any
dividend rights, voting rights or any other rights of a shareholder with respect
to Company common stock.
2. Grant of Awards. As of the date of this Agreement, an initial grant of 6,518
shares of Performance Stock, having a value on the date of grant of $104,288.00
is hereby credited to Employee's Performance Stock Account. For each calendar
year after 1995 during the term of this Agreement, Employee will be granted (as
of the last business day of each such year) such number of whole and/or
fractional shares of Performance Stock, at a deemed value of the bid price of
the Company's publicly traded common stock on the last trading day of the Plan
Year in the case of 2.a. and 2.b. and Sixteen Dollars ($16.00) per share in the
case of 2.c., as shall have a value equal to the sum of:
a. An amount determined by multiplying Employee's "Excess 401(k) Amount"
(defined below) by the sum of the highest federal and applicable state income
tax rates in effect for the year in question; plus
b. An amount equal to (i) the employer matching contribution percentage
under the KSOP for such year multiplied by Employee's gross annual compensation
(determined without regard to this Agreement), less (ii) the employer matching
contributions actually made to the KSOP for the benefit of Employee; plus
<PAGE> 2
c. An amount determined by (i) multiplying total Company discretionary
basic and optional contributions to the KSOP, plus forfeitures, by a fraction,
the numerator of which is Employee's gross annual compensation for such year
(determined without regard to this Agreement), and the denominator of which is
total compensation of all KSOP participants, less (ii) the amount actually
contributed to the KSOP by Company, plus forfeitures allocated, for the benefit
of Employee.
In the event Company hereafter elects to (i) alter, amend or terminate
the KSOP, or (ii) establish one or more new deferred compensation plans, the
above stated formula for determining annual grants may be amended in such manner
as Company, in its sole discretion, determines appropriate.
As used in paragraph 2.a., above, the term "Excess 401(k) Amount" means
an amount equal to (i) fifteen percent (15%) of Employee's gross annual
compensation for such year (determined without regard to this Agreement), less
(ii) the maximum permitted deferral through salary reduction contributions to
Company's Employee Stock Ownership Plan with 401(k) Provisions ("KSOP") for such
year.
In the event the common stock of the Company shall cease to be publicly
traded, the deemed value for purposes of 2.a. and 2.b. shall be the value of a
share of the common stock of the Company on the relevant date under the KSOP.
3. Right to Payment for Performance Stock.
a. Employee will be entitled to receive payment for all shares of
Performance Stock credited to the Performance Stock Account upon the earliest to
occur of the following events:
i. A "Change in Control" of Company (defined below);
ii. Employee's termination of employment or retirement from Company;
iii. Employee's death; or
iv. Employee's Total Disability (defined below).
b. A "Change in Control" has occurred if (i) one person, or more than
one person acting as a group, acquires ownership of capital stock of Company
resulting in such person(s) owning Company stock possessing more than 50 percent
of the total fair market value or voting power of the stock of the Company; (ii)
substantially all of the assets of Company are sold; (iii) Company merges or
consolidates with any other corporation or other entity and Company is not the
surviving corporation of such merger or consolidation; or (iv) the owners of a
majority of shares of capital stock of Company terminate the business of, or
liquidate or dissolve, Company.
c. "Total Disability" means complete and permanent inability by reason
of illness or accident to perform Employee's duties. All determinations as to
the date and extent of disability shall be made by Company upon the basis of
such evidence as Company deems necessary and desirable.
<PAGE> 3
4. Form and Timing of Payment. Within thirty (30) days after Employee is
entitled to receive payment pursuant to paragraph 3.a hereof, Company will pay
Employee an amount equal to the value of all Performance Stock which has then
been credited to the Performance Stock Account. For purposes of determining the
amount of the payment each share of Performance Stock will be valued at the
midpoint between the bid and asked price of the Company's publicly traded common
stock as of the close of business on the date of payment, or if the common stock
is no longer publicly traded, at the value of a share of the Company's common
stock as set forth in the then most recent valuation of the common stock of the
Company for purposes of the KSOP. Payments shall be made wholly in cash and the
Employee may not receive common stock or any other security of Company in lieu
thereof. Upon payment, this Agreement shall terminate.
5. Dilution and Other Adjustments. In the event of any change in the
outstanding shares of common stock of Company by reason of any stock dividend or
split, recapitalization, merger, consolidation, spin-off, reorganization,
combination or exchange of shares or other similar corporate change, Company
shall make an adjustment in the number or kind of Performance Stock then held in
the Performance Stock Account.
6. Miscellaneous Provisions.
a. Company may terminate this Agreement at any time; provided, however,
that any Performance Stock granted prior to such termination shall not be
adversely affected by such termination and shall continue to be governed by and
subject to the terms and provisions of this Agreement.
b. This Agreement may not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
c. Employee's rights and interests under this Agreement may not be
assigned or transferred. In the case of Employee's death, payment due under this
Agreement shall be made to Employee's beneficiary, as designated below (which
designation may hereafter be amended), or in the absence of a designation, to
Employee's estate.
d. Neither this Agreement nor any action taken hereunder shall be
construed as creating any right to be retained in the employ of Company or its
subsidiaries.
e. The Performance Stock Account shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating assets of
Company for payment of any benefits hereunder. This Agreement does not create or
confer any interest in any particular assets of Company by reason of the right
to receive a benefit under this Agreement, and Employee will have only the
rights of a general unsecured creditor of Company with respect to any rights
under this Agreement.
f. Company shall have the right to deduct from all awards any taxes
required by law to be withheld with respect to such awards.
<PAGE> 4
SOUTHSIDE BANCSHARES CORP.
Date 04/25/96 By: /s/ Howard F. Etling
Title: Chairman of the Board
Date 04/25/96 /s/Thomas M. Teschner
Thomas M. Teschner
BENEFICIARY DESIGNATION
Full Name of Beneficiary: Susan R. Teschner
Residence 6312 Christopher Winds Ct.
Address of
Beneficiary: 6312 Christopher Winds Ct.
Beneficiary's Social Security no.: ###-##-####
Beneficiary's Relationship to Employee: Wife
Initials: Company: /s/ HE Employee: /s/ TMT
<PAGE> 5
FIRST AMENDMENT TO THE DEFERRED COMPENSATION AGREEMENT
DATED APRIL 25, 1996
THIS AMENDMENT is dated as of August 27, 1998, and is by and between
the SOUTHSIDE BANCSHARES CORP., a Missouri corporation located in St. Louis
Missouri (the "Company") and THOMAS M. TESCHNER (the "Employee").
RECITALS:
1. On April 25, 1996, the Employee and the Company entered into a
certain Deferred Compensation Agreement (the "Agreement").
2. The Company and the Employee agree that it is in the best
interests of each party to amend the Agreement as provided
below.
NOW, THEREFORE, the Agreement is amended as follows:
1. Section 6 of the Agreement shall be amended to become new
Section 8 and new Section 6 is added to read as
follows.
"6. Death Benefits.
Death During Active Service. If the Employee dies
while in the active service of the Company, the Company shall
pay to the Employee's beneficiary the benefit described in
this Section 6.
a. The benefit under this Section 6 is $3,143,878.
b. The Company shall pay the benefit to the
Employee in a lump sum within 30 days of the date of
the Employee's death."
2. New Section 7 is added to the Agreement to read as follows:
"7. Beneficiaries.
a. The Employee shall designate a beneficiary by
filing a written designation with the Company. The
Employee may revoke or modify the designation at any
time by filing a new designation. However,
designations will only be effective if signed by the
Employee and accepted by the Company during the
Employee's lifetime. The Employee's beneficiary
designation shall be deemed automatically revoked if
the beneficiary predeceases the Employee, or if the
Employee names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Employee
dies without a valid beneficiary designation, all
payments shall be made to the Employee's surviving
spouse, if any, and if none, to the
<PAGE> 6
Employee's surviving children and descendants of any
deceased child by right or representation, and if no
children or descendants survive, to the Employee's
estate.
b. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of
handling the disposition of his or her property, the
Company may pay such benefit to the guardian, legal
representative or person having the care or custody
of such minor, incompetent person or incapable
person. The Company may require proof of
incompetence, minority or guardianship as it may deem
appropriate prior to distribution of the benefit.
Such distribution shall completely discharge the
Company from all liability with respect to such
benefit."
3. New Section 8 (formerly Section 6 of the Agreement) is amended
by adding new subsection (g) to read as follows:
"g. Claims and Review Procedures.
i. Claims Procedure. The Company shall
notify the Employee's beneficiary in
writing, within ninety (90) days of his or
her written application for benefits, of his
or her eligibility or ineligibility for
benefits under the Agreement. If the Company
determines that the beneficiary is not
eligible for benefits or full benefits, the
notice shall set forth (1) the specific
reasons for such denial, (2) a specific
reference to the provisions of the Agreement
on which the denial is based, (3) a
description of any additional information or
material necessary for the claimant to
perfect his or her claim, and a description
of why it is needed, and (4) an explanation
of the Agreement's claims review procedure
and other appropriate information as to the
steps to be taken if the beneficiary wishes
to have the claim reviewed. If the Company
determines that there are special
circumstances requiring additional time to
make a decision, the Company shall notify
the beneficiary of the special circumstances
and the date by which a decision is expected
to be made, and may extend the time for up
to an additional ninety-day period.
ii. Review Procedure. If the beneficiary is
determined by the Company not to be eligible
for benefits, or if the beneficiary believes
that he or she is entitled to greater or
different benefits, the beneficiary shall
have the opportunity to have such claim
reviewed by the Company by filing a petition
for review with the Company within sixty
(60) days after receipt of the notice issued
by the Company. Said petition shall state
the specific reasons which the beneficiary
believes entitle him or her to benefits or
to greater or different benefits. Within
sixty (60) days after receipt of the notice
<PAGE> 7
issued by the Company. Said petition shall
state the specific reasons which the
beneficiary believes entitle him or her to
benefits or to greater or different
benefits. Within sixty (60) days after
receipt by the Company of the petition, the
Company shall afford the beneficiary (and
counsel, if any) an opportunity to present
his or her position to the Company orally or
in writing, and the beneficiary (or counsel)
shall have the right to review the pertinent
documents. The Company shall notify the
beneficiary of its decision in writing, and
the beneficiary (or counsel) shall have the
right to review the pertinent documents. The
Company shall notify the beneficiary of its
decision in writing within the sixty-day
period, stating specifically the basis of
its decision, written in a manner calculated
to be understood by the beneficiary and the
specific provisions of the Agreement on
which the decision is based. If, because of
the need for a hearing, the sixty-day period
is not sufficient, the decision may be
deferred for up to another sixty-day period
at the election of the Company, but notice
of this deferral shall be given to the
beneficiary."
IN WITNESS OF THE ABOVE, Employee has executed this First Amendment and
the Company has caused its duly authorized officers to execute this First
Amendment.
Employee: Company:
THOMAS M. TESCHNER SOUTHSIDE BANCSHARES CORP.
/s/ Thomas M. Teschner /s/ Howard F. Etling
- ----------------------------------- -----------------------------------
Thomas M. Teschner Its Chairman of the Board
-------------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHSIDE
BANCSHARES CORP.'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH DOCUMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,431
<INT-BEARING-DEPOSITS> 3,868
<FED-FUNDS-SOLD> 13,425
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,741
<INVESTMENTS-CARRYING> 97,289
<INVESTMENTS-MARKET> 99,228
<LOANS> 364,127
<ALLOWANCE> 6,222
<TOTAL-ASSETS> 615,721
<DEPOSITS> 529,004
<SHORT-TERM> 17,598
<LIABILITIES-OTHER> 4,591
<LONG-TERM> 0
0
0
<COMMON> 2,995
<OTHER-SE> 61,533
<TOTAL-LIABILITIES-AND-EQUITY> 615,721
<INTEREST-LOAN> 22,347
<INTEREST-INVEST> 8,016
<INTEREST-OTHER> 1,001
<INTEREST-TOTAL> 31,364
<INTEREST-DEPOSIT> 14,300
<INTEREST-EXPENSE> 14,796
<INTEREST-INCOME-NET> 16,568
<LOAN-LOSSES> 47
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,907
<INCOME-PRETAX> 7,061
<INCOME-PRE-EXTRAORDINARY> 7,061
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,124
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.81
<YIELD-ACTUAL> 4.25
<LOANS-NON> 2,726
<LOANS-PAST> 2,404
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,120
<CHARGE-OFFS> 435
<RECOVERIES> 233
<ALLOWANCE-CLOSE> 6,222
<ALLOWANCE-DOMESTIC> 6,222
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
