<PAGE> 1
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
(No fee required)
For the fiscal year ended December 31, 1998.
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 23, 1999, 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 $68,256,000.
At March 23, 1999, the number of shares outstanding of the Registrant's
common stock, $1.00 par value, was 8,638,978.
DOCUMENTS INCORPORATED BY REFERENCE
1) Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 (Part I and Part II); and
(2) Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled for April 22, 1999 (Part III).
================================================================================
<PAGE> 2
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. On June 29, 1998, Southside
acquired 100% of the outstanding common stock of Public Service Bank, FSB
("PSB") in exchange for a combination of cash and common stock of the Registrant
in a transaction accounted for under the purchase method of accounting. At
acquisition, PSB had total assets of $73.7 million which were immediately merged
into South Side National Bank in St. Louis. The Registrant and its subsidiaries
had, at December 31, 1998, consolidated total assets of approximately $610
million. The following table shows the year of acquisition, total assets, total
loans and total deposits at December 31, 1998, before elimination of
intercompany accounts, 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 $408,058 $232,453 $345,452
State Bank of Jefferson County 1983 $ 59,057 $ 39,393 $ 52,889
Bank of Ste. Genevieve 1985 $ 87,267 $ 50,214 $ 75,794
The Bank of St. Charles
County 1986 $ 56,940 $ 36,312 $ 51,682
</TABLE>
The Registrant's subsidiary banks, which operated 16 banking offices in
Missouri during 1998, 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, 1998, the combined market value
of fiduciary and custodial assets under management of the trust department was
approximately $279 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.
<PAGE> 3
Southside has seven 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 258 and 31, respectively, on December 31, 1998.
The information on page 4 and pages 49-52 of the Southside Bancshares
Corp. 1998 Annual Report to Shareholders is incorporated herein by reference.
(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 quarterly and annual reports 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 bank holding companies to 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
2
<PAGE> 4
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 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 that 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 requires 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.
3
<PAGE> 5
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 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 43 and 44 of the Southside Bancshares Corp. 1998
Annual Report to Shareholders 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.
4
<PAGE> 6
(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 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. 1998 Annual Report to Shareholders, 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 good credit quality in
recent years, approximately 51% of its loans at December 31,
1998 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 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
5
<PAGE> 7
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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
6
<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)
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $68,166 $69,168 $62,016 $62,214 $69,219
Real estate-commercial 115,214 98,759 82,045 88,321 82,807
Real estate-construction 21,993 30,836 26,067 15,510 11,019
Real estate-residential 119,917 92,028 96,039 102,418 108,134
Consumer 22,219 23,627 17,304 17,626 18,334
Industrial revenue bonds 4,717 5,517 6,373 7,789 9,311
Other loans 4,762 6,502 4,619 9,946 2,573
------------ ----------- ---------- ---------- ----------
TOTAL LOANS $356,988 $326,437 $294,463 $303,824 $301,397
============ =========== ========== ========== ==========
</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, 1998.
<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 $43,752 $22,121 $2,293 $68,166
Real estate-construction 19,549 1,364 1,080 21,993
Other loans 4,757 5 -- 4,762
-------- --------- -------- --------
TOTAL $68,058 $23,490 $3,373 $94,921
======== ========= ======== ========
</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, 1998 (in thousands).
Loans with predetermined interest rates $21,304
Loans with floating or adjustable interest rates 5,559
-------
TOTAL $26,863
=======
7
<PAGE> 9
II. Summary of Loan Loss Experience
The information under the caption Allowance for Possible Loan Losses
and Risk Elements on pages 8 through 11 of the Southside Bancshares Corp. 1998
Annual Report to Shareholders is incorporated herein by reference.
The following table analyzes the loan loss experience of the Registrant
for the periods indicated:
<TABLE>
<CAPTION>
(dollars in thousands)
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net of
unearned discount $345,902 $311,266 $295,683 $297,480 $294,749
======== ======== ======== ======== ========
Allowance at beginning of year $ 6,120 $ 5,602 $ 5,635 $ 7,144 $ 8,334
======== ======== ======== ======== ========
Loans charged off:
Commercial, financial and 296 139 878 1,606 821
agricultural
Real estate - residential 2 77 93 294 1,302
Consumer 238 151 248 274 195
-------- -------- -------- -------- --------
Total loans charged off 536 367 1,219 2,174 2,318
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and 152 687 869 661 276
agricultural
Real estate - mortgage 52 62 171 186 568
Consumer 85 76 86 75 91
-------- -------- -------- -------- --------
Total recoveries 289 825 1,126 922 935
-------- -------- -------- -------- --------
Net loans charged off (recovered) 247 (458) 93 1,252 1,383
-------- -------- -------- -------- --------
Provisions charged to
operating expense 62 60 60 70 193
-------- -------- -------- -------- --------
Allowance of Bay-Hermann-
Berger Bank at sale - - - (327) -
-------- -------- -------- -------- --------
Allowance of PSB at acquisition 257 - - - -
-------- -------- -------- -------- --------
Allowance at end of year $ 6,192 $ 6,120 $ 5,602 $ 5,635 $ 7,144
======== ======== ======== ======== ========
Ratio of net charge-offs during
year to average loans outstanding 0.07% * 0.03% 0.42% 0.47%
======= ======= ======= =======
</TABLE>
* Ratio is not applicable for 1997, as recoveries exceeded charge-offs for the
year.
8
<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)
-----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each Loans in Each Loans in Each
Category To Category To Category To Category To Category To
Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance Total Loans
--------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural $3,992 20.4% $3,920 23.0% $3,902 23.2% $3,935 23.0% $5,094 26.0%
Real estate -
construction 500 6.2% 500 9.4% 300 8.9% 300 5.1% 300 3.7%
Real estate -
mortgage 1,000 65.9% 1,000 58.4% 1,000 60.5% 1,000 62.8% 1,500 63.4%
Consumer loans to
individuals 500 6.2% 500 7.2% 200 5.8% 200 5.8% 200 6.1%
Other loans
(Unallocated) 200 1.3% 200 2.0% 200 1.6% 200 3.3% 50 0.8%
------ ----- ------ ----- ------ ----- ------- ------ ------- ------
$6,192 100.0% $6,120 100.0% $5,602 100.0% $ 5,635 100.0% $ 7,144 100.0%
====== ===== ====== ===== ====== ===== ======= ====== ======= ======
</TABLE>
9
<PAGE> 11
III. Investment Portfolio
The information contained in note 3 of the Notes to Consolidated
Financial Statements on pages 37 and 38 of the Southside Bancshares Corp. 1998
Annual Report to Shareholders 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, 1998
------------------------------------------------------------------------
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 $4,652 5.74% $17,641 6.13%
After 1 but within 5 years 22,422 5.80 32,288 5.92
After 5 but within 10 years 7,764 6.06 5,840 6.01
After 10 years 997 6.35 -- --
----- -------
Total 35,835 5.86 55,769 5.99
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS:
Within 1 year -- -- 1,931 5.96
After 1 but within 5 years -- -- 8,262 5.40
After 5 but within 10 years 300 5.61 10,785 5.18
After 10 years 6,243 6.98 4,669 4.83
----- ------
Total 6,543 6.92 25,647 5.25
OTHER DEBT SECURITIES:
Within 1 year -- -- -- --
After 1 but within 5 years -- -- -- --
After 5 but within 10 years 102 6.29 -- --
After 10 years -- -- -- --
------- -------
Total 102 6.29 -- --
TOTAL INVESTMENT SECURITIES (EXCLUDING MORTGAGE-BACKED
AND OTHER SECURITIES):
Within 1 year 4,652 5.74 19,572 6.11
After 1 but within 5 years 22,422 5.80 40,550 5.82
After 5 but within 10 years 8,166 5.97 16,625 5.47
After 10 years 7,240 6.88 4,669 4.83
----- ---- ----- ----
Total 42,480 6.02 81,416 5.76
OTHER SECURITIES - NO STATED MATURITY EQUITY 2,221 6.50 -- --
MORTGAGE-BACKED SECURITIES 53,194 5.85 2,620 6.17
------ -----
Total $97,895 5.94% $84,036 5.77%
======= ==== ======= ====
</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, 1998. 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 1998,
adjusted for the disallowance of interest cost to carry nontaxable
securities.
10
<PAGE> 12
ITEM 2. PROPERTIES
The Registrant owned the following physical properties as of December
31, 1998:
South Side National Bank in St. Louis, a subsidiary of the Registrant,
owns a nine-story banking and office building at 3606 Gravois Avenue, St. Louis,
Missouri 63116, and the adjacent drive-up facilities and three parking lots. The
Registrant and this subsidiary are currently the only tenants 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 $32,000. This subsidiary 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 $86,000. This
subsidiary also owns the land and bank building located at 6025 Chippewa, St.
Louis, Missouri 63109. This is a three-story building, and the second and third
floors are leased to tenants for an annual rental of approximately $47,000. This
subsidiary also owns the land and bank buildings at 10385 West Florissant,
Ferguson, Missouri 63136, 8440 Morganford Road, St. Louis County, Missouri
63123, 840 Meramec Station Road, St. Louis, Missouri 63088, and 3420 Iowa
Street, St. Louis, Missouri 63118. This subsidiary leases a branch facility at
4666 Lansdowne, St. Louis, Missouri 63116. In addition, this subsidiary owns
land and the building at 4111 Telegraph Road in St. Louis County, where the
Company opened its tenth branch in 1999.
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 and
is currently constructing a third banking facility, which is expected to be
completed during 1999.
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 45 of the Southside Bancshares Corp. 1998 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<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 PRINCIPAL OCCUPATIONS OR EMPLOYMENT SINCE
COMPANY JANUARY 1, 1994
------------------------------- -----------------------------------------
<S> <C>
Thomas M. Teschner (42) President and Chief Executive Officer, Southside
President and Chief Executive Bancshares Corp.; President and Chief Executive
Officer Officer, South Side National Bank in St. Louis.
Joseph W. Pope (33) Chief Financial Officer and Senior Vice President,
Senior Vice President and Southside Bancshares Corp. (Since April 1995); Vice
Chief Financial Officer President, South Side National Bank in 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 8, 1999 was 8,638,978 shares, and the market
price for the Common Stock on March 23, 1999 was $11.625 bid; $12.125 asked.
The information on page 27 of the Southside Bancshares Corp. 1998
Annual Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information on page 5 of the Southside Bancshares Corp. 1998 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 27 of the Southside Bancshares Corp.
1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on pages 16 and 17 of the Southside Bancshares Corp.
1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages 29 through 48 of the Southside Bancshares
Corp. 1998 Annual Report to Shareholders is incorporated herein by reference.
12
<PAGE> 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 22,
1999 is incorporated herein by reference. The information on page 14 of the
Southside Bancshares Corp. Proxy Statement for the Annual Meeting of
Shareholders scheduled for April 22, 1999, 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 7 through 11 of the Southside Bancshares Corp.
Proxy Statement for the Annual Meeting of Shareholders scheduled for April 22,
1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information on pages 2 through 4 of the Southside Bancshares Corp.
Proxy Statement for the Annual Meeting of Shareholders scheduled for April 22,
1999, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 14 of the Southside Bancshares Corp. Proxy
Statement for the Annual Meeting of Shareholders scheduled for April 22, 1999,
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, 1998 and 1997
Consolidated Statements of Income -
Years Ended December 31, 1998, 1997 and 1996
13
<PAGE> 15
Consolidated Statements of Shareholders' Equity and
Comprehensive Income Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows Years Ended December 31,
1998, 1997 and 1996
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 3(a) to the Registrant's Registration Statement on Form S-4/A
on May 8, 1998, 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, as amended, filed as Exhibit 10(a) to the Registrant's Report on Form
10-Q for the quarterly period ended June 30, 1998, 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., as amended, filed as
Exhibit 10(c) to the Registrant's Report on Form 10-Q for the quarterly period
ended September 30, 1998, 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.
10(e) Southside Bancshares Corp. 1998 Stock Option Plan.
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, 1998.
21 List of Subsidiaries.
23 Independent Auditors' Consent of KPMG LLP.
14
<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, 1998:
1 Form 8-K, dated October 5, 1998, reporting under Item 5
a news release announcing Registrant's three-for-one stock split payable in the
form of a stock dividend on November 15, 1998 to shareholders of record on
November 2, 1998.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
15
<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 25, 1999
By /s/ Joseph W. Pope
-------------------------------------------
Joseph W. Pope
Senior Vice President and Chief Financial Officer
(Principal Financial Officer, Controller and
Principal Accounting Officer)
March 25, 1999
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 25, 1999 Date: March 25, 1999
/s/ Thomas M. Teschner /s/ Douglas P. Helein
- ----------------------------------- -----------------------------------
Thomas M. Teschner Douglas P. Helein
President, Chief Executive Officer Director
and Director
Date: March 25, 1999 Date: March 25, 1999
/s/ Norville K. McClain /s/ Earle J. Kennedy, Jr.
- ----------------------------------- -----------------------------------
Norville K. McClain Earle J. Kennedy, Jr.
Director Director
Date: March 25, 1999 Date: March 25, 1999
<PAGE> 18
/s/ Daniel J. Queen /s/ Richard G. Schroeder, Sr.
- ----------------------------------- ----------------------------------
Daniel J. Queen Richard G. Schroeder, Sr.
Director Director
Date: March 25, 1999 Date: March 25, 1999
<PAGE> 19
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT DESCRIPTION REPORT
NO. ----------- PAGE
- -------------- NO.
------
<S> <C> <C>
3(a) Restated Articles of Incorporation of the Registrant *
filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-4/A on May 8, 1998,
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 *
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, 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, as amended, filed as Exhibit
10(a) to the Registrant's Report on Form 10-Q for the
quarterly period ended June 30, 1998, 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., as amended, filed as Exhibit 10(c) to the
Registrant's Report on Form 10-Q for the quarterly
period ended September 30, 1998, 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.
10(e) Southside Bancshares Corp. 1998 Stock Option Plan.
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,
1998
21 List of Subsidiaries, filed herewith.
23 Independent Auditors' Consent of KPMG LLP, filed
herewith.
27 Financial Data Schedule, filed herewith.
</TABLE>
* Incorporated by reference.
<PAGE> 1
EXHIBIT 10(e)
SOUTHSIDE BANCSHARES CORP.
1998 STOCK OPTION PLAN
SECTION I. GENERAL PROVISIONS
A. PURPOSE OF PLAN
The purpose of the Southside Bancshares Corp. 1998 Stock Option Plan
(the "Plan") is to enhance the profitability and value of the Company for the
benefit of its shareholders by providing for stock options to attract, retain
and motivate officers and other key employees who make important contributions
to the success of the Company.
B. DEFINITIONS
1. "Bank" means Southside National Bank in St. Louis.
2. "Board" means the Board of Directors of the Company.
3. "Cause" means
(i) Any willful misconduct by an Employee or a member of the
Board of Directors of the Company and/or the Bank resulting in
indictment for an alleged felony; or
(ii) A violation by an Employee of any material provision of the
Employee's Employment Agreement; or
(iii) Any willful failure (other than a failure resulting from
disability or death) by an Employee substantially to perform any
reasonable directions of the Company's Board of Directors or the Bank's
Board of Directors within sixty (60) days (or such longer period if
more than sixty (60) days are required to substantially perform such
directions with reasonable diligence and the Employee has commenced
performance within such sixty (60) days) after written demand for
substantial compliance by the Boards, which written demand is to
specifically identify the manner in which the Boards believe that
Employee has not substantially performed.
4. "Change in Control" means the first day any one or more of the
following conditions shall have been satisfied:
(i) Any individual, corporation (other than the Company),
partnership, trust, association, pool, syndicate, or any other entity
or any group of persons (other than the Southside Bancshares Corp. 1993
Non-Qualified Employee Stock Ownership Plan) acting in concert becomes
the beneficial owner, as that concept is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the
Exchange Act, of the
<PAGE> 2
securities of the Company and/or the Bank possessing twenty-five
percent (25%) or more of the voting power for the election of directors
of the Company and/or the Bank;
(ii) There shall be consummated any consolidation, merger or
other business combination involving the Company and/or the Bank or the
securities of the Company and/or the Bank in which holders of voting
securities of the Company and/or the Bank, as the case may be,
immediately prior to such consummation own, as a group, immediately
after such consummation, voting securities of the Company and/or the
Bank, as the case may be (or if the Company or the Bank does not
survive such transaction(s), voting securities of the corporation(s)
surviving such transaction(s)) having less than fifty percent (50%) of
the total voting power in an election of directors of the Company
and/or the Bank (or such other surviving corporation(s)), or
(iii) During any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
directors of the Company and/or the Bank cease for any reason to
constitute at least a majority thereof; or
(iv) Removal by the stockholders of the Company and/or the Bank
of all or a majority of the incumbent directors of the Company or the
Bank, respectively, other than a removal for Cause; or
(v) There shall be consummated any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions)
of all, or substantially all, of the assets of the Company and/or the
Bank (on a consolidated basis) to a party which is not controlled by or
under common control with the Company and/or the Bank, as the case may
be.
5. "Committee" means the committee the Board may designate to
administer the Plan. The Committee shall be comprised of at least three
non-Employee members of the Board.
6. "Common Stock" means Southside Bancshares Corp. common stock.
7. "Company" means Southside Bancshares Corp.
8. "Corporate Officer" means the President, Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer, Secretary and Treasurer of the
Company.
9. "Employee" means any person who is employed by the Company or an
Subsidiary.
10. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
11. "Fair Market Value" of any class or series of Stock means the fair
and reasonable value thereof as determined by the Committee according to prices
in trades as reported on the Nasdaq. If there are no prices so reported or if,
in the opinion of the Committee, such reported
2
<PAGE> 3
prices do not represent the fair and reasonable value of the Stock, then the
Committee shall determine Fair Market Value by any means it deems reasonable
under the circumstances.
12. "Incentive Stock Option" means an option to purchase Stock which
satisfies the requirements set forth in Section 422 of the Internal Revenue Code
of 1986, as amended.
13. "Non-Qualified Stock Option" means an option to purchase Stock
which does not satisfy the requirements set forth in Section 422 of the Internal
Revenue Code of 1986, as amended.
14. "Plan" means the Southside Bancshares Corp. 1998 Stock Option Plan.
15. "Stock" means the Common Stock or any other authorized class or
series of common stock or any such other security outstanding upon the
reclassification of any of such classes or series of common stock, including,
without limitation, any stock split-up, stock dividend, creation of targeted
stock, or other distributions of stock in respect of stock, or any reverse stock
split-up, or recapitalization of the Company or any merger or consolidation of
the Company with any Affiliate.
16. "Stock Option" means an option to purchase Stock granted under
Section II of the Plan.
17. "Subsidiary" means Bank and any other "subsidiary corporation" of
the Company as defined in Section 424(f) (or any successor provision) of the
Code.
C. SCOPE OF PLAN AND ELIGIBILITY
1. Any Employee selected by the Committee shall be eligible for the Stock
Options granted under Section II of the Plan.
D. AUTHORIZATION AND RESERVATION
1. There shall be established a reserve of 250,000 authorized shares of Common
Stock, which shall be the total number of shares of Common Stock that may be
issued pursuant to Stock Options. The following principles will apply in
determining the number of shares of Stock issued pursuant to Stock Options:
(i) The number of shares underlying a Stock Option shall be
counted against the Plan reserve at the time of grant.
(ii) Shares which underlie Stock Options that (in whole or part)
expire, terminate, are forfeited, or otherwise become non-payable, or
which are recaptured by the Company in connection with a forfeiture
event, may be re-used in new grants to the extent of such expiration,
termination, forfeiture, non-payability, or recapture.
3
<PAGE> 4
2. The reserves may consist of authorized but unissued shares of Common
Stock or of reacquired shares, or both.
3. The maximum aggregate number of shares of Common Stock with respect
to which Stock Options may be granted in any one fiscal year to any single
Employee shall be 50,000 shares.
E. GRANT OF STOCK OPTIONS AND ADMINISTRATION OF THE PLAN
1. The Committee shall determine those Employees eligible to receive
Stock Options and the amount, type and terms of each Stock Option, subject to
the provisions of the Plan, and it shall have the power to delegate
responsibility to others to assist it in making such determinations. Except to
the extent prohibited by Rule 16b-3, the Committee may accelerate the date on
which any Stock Option or Common Stock issued pursuant to a Stock Option shall
vest and may remove any restrictions on such Stock Option or Common Stock at any
time after grant and for any reason the Committee deems appropriate. The
Committee shall be comprised of (i) "outside directors" within the meaning of
Section 162(m) of the Code, subject to any transitional rules applicable to the
definition of outside director, and (ii) at least three "non-employee directors"
within the meaning of Rule 16b-3 under the Exchange Act, or otherwise qualified
to administer this Plan as contemplated by that Rule or any successor Rule under
the Exchange Act. In making any determinations under the Plan, the Committee
shall be entitled to rely on reports, opinions or statements of officers or
employees of the Company, as well as those of counsel, public accountants and
other professional or expert persons. All determinations, interpretations and
other decisions under or with respect to the Plan or any Stock Option by the
Committee shall be final, conclusive and binding upon all parties, including
without limitation, the Company, any Employee and any other person with rights
to any Stock Option under the Plan, and no member of the Committee shall be
subject to individual liability with respect to the Plan.
2. The Committee shall administer the Plan and, in connection
therewith, it shall have full power to construe and interpret the Plan,
establish rules and regulations and perform all other acts it believes
reasonable and proper, including the power to delegate responsibility to others
to assist it in administering the Plan.
SECTION II. STOCK OPTIONS
A. DESCRIPTION
The Committee may grant Stock Options with respect to any class or
series of Stock. The Committee may grant Stock Options that qualify as Incentive
Stock Options and it may grant Non-Qualified Stock Options.
4
<PAGE> 5
B. TERMS AND CONDITIONS
1. Each Stock Option shall be set forth in a written agreement
containing such terms and conditions as the Committee may determine, subject to
the provisions of the Plan.
2. Except as otherwise provided herein, the purchase price of any
shares exercised under any Stock Option must be paid in full upon such exercise.
The payment shall be made in such form, which may be cash, Stock (through
delivery of Stock or by attestation or other deemed or constructive delivery) or
any other property, as the Committee may determine. The Committee may permit a
Participant to elect to pay the exercise price upon the exercise of a Stock
Option by authorizing a third party to sell shares of Stock (or a sufficient
portion of the shares) acquired upon exercise of the Stock Option and remit to
the Company a sufficient portion of the sale proceeds to pay the entire exercise
price and any withholding tax resulting from such exercise. The Committee may
also permit other forms of cashless exercise. The Committee, in its discretion
may impose such conditions, restrictions and contingencies with respect to
shares of Stock acquired pursuant to the exercise of a Stock Option as the
Committee determines to be desirable.
3. No Incentive Stock Option may be exercised after the expiration of
ten (10) years from the date such option is granted.
4. The option price of shares subject to any Stock Option shall not be
less than the Fair Market Value of the appropriate class or series of Stock at
the time the option is granted.
5. In the case of an Incentive Stock Option, the aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Stock with
respect to which Stock Options are exercisable for the first time by any
Employee during any calendar year (under all such plans of his employer
corporation and its parent and subsidiary corporations) shall not exceed
$100,000. To the extent the $100,000 limitation is exceeded, the Stock Options
will be treated as Non-Qualified Stock Options.
6. All options will become immediately exercisable in the event of a
Change in Control.
C. PERIOD OF EXERCISE
Unless otherwise provided herein, a Stock Option shall be exercisable
in accordance with such terms and conditions and during such periods as may be
established by the Committee.
SECTION III. FORFEITURE OF STOCK OPTIONS
The Committee may include in any Stock Option agreement any provision
relating to forfeitures of Stock Options that it deems appropriate. Such
forfeiture provisions may include, among others, prohibitions on competing with
the Company and its Subsidiaries and other detrimental conduct. Forfeiture
provisions may differ among Stock Options of the same type. As
5
<PAGE> 6
used in the Plan, a "forfeiture" of a Stock Option includes the recapture of
economic benefits derived from a Stock Option, as well as the forfeiture of a
Stock Option itself; however, the Committee may define the term more narrowly in
specific Stock Option agreements or contexts.
Stock Option agreements may provide for any forfeiture provision to
terminate or be waived upon a Change in Control. In its discretion, the
Committee may provide in any Stock Option agreement for the termination of any
forfeiture provision upon the happening of any specified event, and may
terminate or waive any forfeiture provision by action taken after grant.
SECTION IV. DEATH OF STOCK OPTION RECIPIENT
The Committee, in its discretion, may determine the disposition of
Stock Options in the event of the death of an Employee.
To the extent permitted by the Committee in its sole discretion, a
Stock Option recipient may file with the Committee a written designation of a
beneficiary or beneficiaries (subject to such limitations as to the classes and
number of beneficiaries and contingent beneficiaries as the Committee may from
time to time prescribe) to exercise, in the event of the death of the recipient,
a Stock Option. The Committee reserves the right to review and approve
beneficiary designations. A recipient may from time to time revoke or change any
such designation or beneficiary and any designation of beneficiary under the
Plan shall be controlling over any other disposition, testamentary or otherwise;
provided, however, that if the Committee shall be in doubt as to the right of
any such beneficiary to exercise any Stock Option, the Committee may determine
to recognize only an exercise by the legal representative of the recipient, in
which case the Company, the Committee and the members thereof shall not be under
any further liability to anyone.
SECTION V. OTHER GOVERNING PROVISIONS
A. TRANSFERABILITY
Except as otherwise noted herein, no Stock Option shall be transferable
other than by beneficiary designation, will or the laws of descent and
distribution, and any right granted under a Stock Option may be exercised during
the lifetime of the holder thereof only by him or by his guardian or legal
representative; provided, however, that the Committee may grant Non-Qualified
Stock Options that are transferable, without payment of consideration, to (i)
revocable trusts for the benefit of immediate family members which qualify as
grantor trusts for Federal income tax purposes, (ii) to immediate family
members, and (iii) to partnerships whose only partners are immediate family
members. The transferee of a transferable Non-Qualified Stock Option is subject
to all conditions applicable to the transferable Non-Qualified Stock Option
prior to its transfer except that the transferee may not avail himself of the
limited transferability proviso of this Section V.A.
6
<PAGE> 7
B. RIGHTS AS A SHAREHOLDER
A recipient of a Stock Option shall, unless the terms of the Stock
Option provide otherwise, have no rights as a shareholder, with respect to any
Stock Options or shares which may be issued in connection with the Stock Option
until the issuance of a Stock certificate for such shares, and no adjustment
other than as stated herein shall be made for dividends or other rights for
which the record date is prior to the issuance of such Stock certificate. In
lieu of actual issuance of Stock certificates, the Company may elect to maintain
bookkeeping records of stock ownership until such time as an Employee requests
stock certificates.
C. GENERAL CONDITIONS OF STOCK OPTIONS
No Employee or other person shall have any right with respect to this
Plan, the shares reserved or in any Stock Option, contingent or otherwise, until
written evidence of the Stock Option shall have been delivered to the recipient
and all the terms, conditions and provisions of the Plan applicable to such
recipient have been met.
D. RESERVATION OF RIGHTS OF COMPANY
The selection of an Employee for any Stock Option shall not give such
person any right to continue as an Employee and the right to discharge with or
without cause any Employee is specifically reserved.
E. ACCELERATION
The Committee may, in its sole discretion, accelerate the date of
exercise of any Stock Option.
F. EFFECT OF CERTAIN CHANGES
In the event of any extraordinary dividend, stock split-up, stock
dividend, issuance of any targeted stock, recapitalization, warrant or rights
issuance or combination, exchange or reclassification with respect to any
outstanding class or series of Stock, or consolidation, merger or sale of all or
substantially all of the assets of the Company, the Committee or its delegee
shall cause such equitable adjustments as it deems appropriate to be made to the
shares reserved and the other share limitations under Section I.D. of the Plan
and the terms of outstanding Stock Options to reflect such event and preserve
the value of such Stock Options. In the event the Committee determines that any
such event has a minimal effect on the value of Stock Options, it may elect not
to cause any such adjustments to be made. In all events, the determination of
the Committee or its delegee shall be conclusive. If any such adjustment would
result in a fractional security being issuable or awarded under this Plan, such
fractional security shall be disregarded.
7
<PAGE> 8
G. WITHHOLDING OF TAXES
The Company shall deduct from any payment, or otherwise collect from
the recipient, any taxes required to be withheld by federal, state or local
governments in connection with any Stock Option The recipient may elect, subject
to approval by the Committee, to have shares of Stock withheld by the Company in
satisfaction of such taxes, or to deliver other shares of Stock owned by the
recipient in satisfaction of such taxes. With respect to Corporate Officers or
other recipients subject to Section 16(b) of the Exchange Act, the Committee may
impose such other conditions on the recipient's election as it deems necessary
or appropriate in order to exempt such withholding from the penalties set forth
in said Section 16(b). The number of shares to be withheld or delivered shall be
calculated by reference to the Fair Market Value of the appropriate class or
series of Stock on the date that such taxes are determined.
H. NO WARRANTY OF TAX EFFECT
No opinion is expressed nor warranties made as to the effect for
federal, state or local tax purposes of any Stock Option.
I. AMENDMENT OF PLAN
The Board may, from time to time, amend, suspend or terminate the Plan
in whole or in part, and if terminated may reinstate any or all of the
provisions of the Plan, except that no amendment, suspension or termination may
apply to the terms of any Stock Option (contingent or otherwise) granted prior
to the effective date of such amendment, suspension or termination without the
recipient's consent. Any such action of the Board may be taken without the
approval of the Company's shareholders, but only to the extent that such
shareholder approval is not required by applicable law or regulation, including
specifically the Internal Revenue Code of 1986, as amended, or Rule 16b-3
promulgated under the Exchange Act.
J. CONSTRUCTION OF PLAN
The place of administration of the Plan shall be in the State of
Missouri, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws, but not the laws
pertaining to choice of laws, of the State of Missouri.
SECTION VI. EFFECTIVE DATE AND TERM
Subject to the approval of the shareholders of the Company, this Plan
shall be effective April 23, 1998; provided, however, that to the extent that
Stock Options are made under the Plan prior to its approval by shareholders,
they shall be contingent on approval of the Plan by the shareholders of the
Company. The Plan shall continue in effect until December 31, 2007, when it
shall terminate. Upon termination, any balances in the Stock reserve established
in Section I.D. shall be canceled, and no Stock Options shall be granted under
the Plan thereafter. The Plan shall
8
<PAGE> 9
continue in effect, however, insofar as is necessary to complete all of the
Company's obligations under outstanding Stock Options and to conclude the
administration of the Plan.
SOUTHSIDE BANCSHARES CORP.
By: /s/ Thomas M. Teschuer
-----------------------------
<PAGE> 1
EXHIBIT 13
SOUTHSIDE BANCSHARES CORP.
Annual Report
December 31, 1998
(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......................................... 28
Independent Auditors' Report.............................................................................. 29
Consolidated Financial Statements of Southside Bancshares Corp. and Subsidiaries:
Balance Sheets....................................................................................... 30
Statements of Income................................................................................. 31
Statements of Shareholders' Equity and Comprehensive Income.......................................... 32
Statements of Cash Flows............................................................................. 33
Notes to Consolidated Financial Statements........................................................... 34
Southside Bancshares Corp. and Subsidiaries - Directors and Officers:
Southside Bancshares Corp............................................................................ 49
South Side National Bank in St. Louis................................................................ 50
State Bank of Jefferson County....................................................................... 51
Bank of Ste. Genevieve............................................................................... 51
The Bank of St. Charles County....................................................................... 52
</TABLE>
1
<PAGE> 3
LETTER TO OUR SHAREHOLDERS
Southside Bancshares Corp. and Subsidiaries
Dear Shareholders:
Each of the past several years have been marked by their own significant
milestones, and 1998 is no exception. In 1998, the Company set a new record
level of net income at $6,810,000; attained year-end total assets of
$610,293,000, which is also an all-time high; completed the acquisition of
Public Service Bank, FSB (PSB); and effected the Company's second stock split in
the past three years. We believe all of these accomplishments are illustrations
of our organization's commitment to achieving established goals.
Earnings for 1998 were $6,810,000 or $.82 per common share compared to
$6,302,000 or $.77 in 1997. This increase of $508,000 or 8% was primarily the
result of an increase in net interest income. Asset growth from the PSB
acquisition resulted in an increase in net interest income, but was also largely
responsible for the decline in the return on average assets to 1.15% in 1998,
compared to 1.18% in 1997, as management believes the full effects of the
acquisition will not be realized until 1999. Return on average shareholders'
equity (ROE) declined slightly during 1998 to 11.12% versus 11.44% in the prior
year. One of the goals of the Company's strategic business plan has been to
improve ROE, and while actions taken in 1998 were not sufficient to increase
this ratio, they did reduce the level of decline. In 1996 and 1997, ROE declined
by a combined 403 basis points; however, in 1998, the decline had slowed to 32
basis points.
Total assets increased $60,429,000 during 1998 as a result of the PSB
acquisition. Over the past three years, total assets have increased $97,385,000
or 19%. While growth alone does not ensure profitability, management believes
that continued growth will allow the Company to achieve better efficiency
levels, expand its lending capacity, and offer a greater variety of products and
services to its customers. We will continue to evaluate acquisition
opportunities as a means to achieve growth, but we will also focus considerable
effort on achieving internal growth during 1999 and beyond. The Company's lead
bank recently completed construction of its tenth facility in the St. Louis
market, and State Bank of Jefferson County will complete its third location in
1999. Both facilities are in new markets for the Company and provide excellent
opportunities for growth.
The aforementioned PSB acquisition was completed on June 29, 1998. We
expect to begin realizing the full effects of the acquisition during 1999, as
the operating results in 1998 included start-up and conversion related expenses,
duplication of personnel and facilities, and only marginal cross-selling of the
PSB customer base. An area in which the acquisition has had an immediate impact
on the Company was PSB's secondary market mortgage origination operation. Gains
on the sales of loans increased $395,000 or more than 1,000 percent in 1998.
Management views this operation as a valuable component of the acquisition and
plans to build upon this line of business in the future.
On November 15, 1998, the Company completed a three-for-one split of its
common stock. This is the second split in the last three years, and since
December 31, 1995, the Company's common stock has split thirty fold.
Accompanying the stock split was an increase in the fourth quarter dividend to
$.08 per common share. Over the past four quarters, the dividend has increased
$.017 or 27%. We believe both the stock split and the dividend increase are
excellent examples of the Company's commitment to its shareholders and to
increasing shareholder value.
The Year 2000 issue continues to make headlines throughout the country, and
banks seem to be at the forefront of the issue. The Company began efforts in
1997 to evaluate its systems and their Year 2000 preparedness, and the Company
has continued testing and contingency planning during 1998. As a result, the
majority of the Company's mission critical systems have been tested successfully
in the Year 2000 environment, and all remaining mission critical systems will be
tested by the second quarter of 1999. A more comprehensive discussion of this
issue is included on page 25.
Focusing on what is ahead in 1999 and what opportunities exist for banks in
the next millennium, we can not help but be optimistic about the Company's
future. The atmosphere for community banking organizations to survive and even
prosper appears to be very good. By continuing our focus on profitable growth
and customer service, the Company should be able to take advantage of the
opportunities which become available.
2
<PAGE> 4
LETTER TO OUR SHAREHOLDERS (CONT.)
Southside Bancshares Corp. and Subsidiaries
In closing, we would also like to take a moment to acknowledge one of our
former directors. On January 22, 1999, Director Ralph E. Crancer, Jr. passed
away. We feel fortunate to have known him and will always be mindful of his
dedicated service to this organization. Mr. Crancer served as a director for
over 30 years and he will be missed by all of us.
Sincerely,
/s/ Thomas M. Teschner /s/ Howard F. Etling
Thomas M. Teschner Howard F. Etling
President and Chief Executive Officer Chairman of the Board
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 $610,293,000 at December 31, 1998. The following
table shows the total assets at December 31, 1998, 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, 1998
SUBSIDIARY BANKS (IN THOUSANDS)
------------------------------------------- -----------------
<S> <C>
South Side National Bank in St. Louis (SSNB) $ 408,058
State Bank of Jefferson County (SBJC) 59,057
Bank of Ste. Genevieve (BSG) 87,267
The Bank of St. Charles County (BSCC) 56,940
</TABLE>
The Company's subsidiary banks, which operate 16 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. At
December 31, 1998, the combined market value of fiduciary and custodial assets
under management of the trust department was approximately $279,000,000. 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 six officers, the majority of whom are also
officers of South Side National Bank in St. Louis. South Side National Bank in
St. Louis is a national banking organization and employs 177 full-time and 17
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 81 full-time and 14 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 Change
1998 98/97 1997 97/96 1996 96/95 1995 95/94 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Total interest income $ 42,227 7% $ 39,320 4% $ 37,868 2% $ 37,263 8% $ 34,383
Total interest expense 19,857 9 18,243 4 17,526 1 17,335 18 14,753
Net interest income 22,370 6 21,077 4 20,342 2 19,928 2 19,630
Provision for possible loan losses 62 3 60 - 60 (14) 70 (64) 193
Net interest income after
provision for possible loan losses 22,308 6 21,017 4 20,282 2 19,858 2 19,437
Net income 6,810 8 6,302 2 6,158 (9) 6,734 34 5,014
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE DATA
Earnings per common share:
Basic $ 0.82 6% $ 0.77 1% $ 0.76 (11)% $ 0.85 33% $ 0.64
Diluted 0.80 7 0.75 - 0.75 (12) 0.85 33 0.64
Dividends paid per common share 0.29 26 0.23 35 0.17 42 0.12 100 0.06
Book value 7.70 10 6.97 8 6.43 9 5.88 20 4.89
Tangible book value 7.26 5 6.94 9 6.39 10 5.83 21 4.81
Shares outstanding (year end)(1) 8,661,358 2 8,393,010 (1) 8,510,010 - 8,548,950 10 7,774,320
Average shares outstanding 8,297,250 1 8,207,577 1 8,138,325 3 7,931,670 2 7,774,320
Average shares outstanding,
including potentially
dilutive shares 8,554,635 2 8,394,315 2 8,190,642 3 7,951,653 2 7,800,066
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $ 610,293 11% $ 549,864 4% $ 527,907 3% $ 512,908 (1)% $ 517,118
Total deposits 523,289 8 483,363 3 467,276 2 457,567 (2) 468,093
Total loans 356,988 9 326,437 11 294,463 (3) 303,824 1 301,397
Allowance for possible loan losses 6,192 1 6,120 9 5,602 (1) 5,635 (21) 7,144
Short-term borrowings 2,949 (45) 5,333 229 1,623 108 779 (77) 3,378
FHLB borrowings 14,287 100 - - - - - - -
ESOP debt - - - (100) 1,779 (40) 2,987 100 -
Subordinated capital notes - - - - - - (100) 4,190
Total shareholders' equity 64,964 15 56,653 7 52,841 12 47,300 24 38,002
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan-to-deposit ratio 68.22% 67.53% 63.02% 66.40% 64.39%
Allowance for possible loan losses to total loans 1.73 1.87 1.90 1.85 2.37
Dividend payout ratio (2) 39.02 30.43 22.03 14.31 9.33
Return on average assets 1.15 1.18 1.20 1.33 .97
Return on average shareholders' equity 11.12 11.44 12.27 15.47 13.48
Average shareholders' equity to average total assets 10.38 10.28 9.75 8.62 7.19
Net interest margin on average interest-earning assets 4.15 4.34 4.42 4.41 4.27
Allowance for possible loan losses to nonperforming loans 136.08 175.16 473.54 172.11 136.13
Allowance for possible loan losses as a multiple of net charge-offs 25.1X N/A (3) 60.2x 4.5x 5.2x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares outstanding at December 31, 1998, 1997, 1996, and 1995 include
222,372, 259,434, 296,496, and 504,000 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) Annual projected dividends per common share based on the most recent
quarter 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, 1998 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. 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. 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 $60,429,000 to
$610,293,000 at December 31, 1998 when compared to $549,864,000 at December 31,
1997. This increase was the result of an increase in total assets at SSNB of
$54,742,000, the result of the acquisition of Public Service Bank, FSB (PSB) on
June 29, 1998 and increases in total assets at each of the other three
subsidiary banks. PSB was immediately merged with and into SSNB, the Company's
lead subsidiary bank. As of the acquisition date, PSB had total assets of
$73,731,000. However, assets attributable to PSB have declined due to normal
post-acquisition activity, which is discussed in more detail below. Internal
growth and growth through acquisition have both been key components of the
Company's strategic business plan for the past several years and over the past
three years, total assets have increased by $97,385,000 or 19%. Management
believes continued growth will allow the Company to achieve enhanced efficiency
levels, expand its lending capacity, and offer a greater variety of products and
services to its customers because fixed costs can be spread over a larger
customer base.
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)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 68,166 $ 69,168 $ 62,016 $ 62,214 $ 69,219
Real estate - commercial 115,214 98,759 82,045 88,321 82,807
Real estate - construction 21,993 30,836 26,067 15,510 11,019
Real estate - residential 119,917 92,028 96,039 102,418 108,134
Consumer 22,219 23,627 17,304 17,626 18,334
Industrial revenue bonds 4,717 5,517 6,373 7,789 9,311
Other 4,762 6,502 4,619 9,946 2,573
---------- ---------- ----------- ----------- ----------
$ 356,988 $ 326,437 $ 294,463 $ 303,824 $ 301,397
========== ========== =========== =========== ==========
</TABLE>
6
<PAGE> 8
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
Total loans increased $30,551,000 during 1998 principally due to the PSB
acquisition, which included $46,318,000 in mostly residential real estate loans.
Excluding the loans acquired in conjunction with the PSB acquisition, total
loans declined $15,767,000 during the year. The Company again faced a very
competitive lending environment during 1998 in St. Louis and the surrounding
communities, and residential real estate loans continued to pay off through
refinancing in the secondary market. The Company has had success in attracting
borrowers displaced or unhappy with merged or acquired lenders; however, this
activity was not sufficient to offset the decline in residential real estate
loans.
Following is a more detailed analysis of the changes in the individual loan
categories during 1998:
- Commercial, financial, and agricultural loans decreased $1,002,000
during 1998. This decrease can be attributed to the net effects of
loan payoffs and new loan originations during the year. As a result of
the highly competitive lending environment, the Company's loan
customers are being lured away by banks offering lower interest rates.
To combat this, the Company has brought in lending personnel with
established lending relationships. In addition, during 1999, the
Company will increase its focus on customer retention to avoid having
to continually seek new lending relationships. Management believes
that some lost relationships will return after they recognize the
value of the service provided by the Company.
- Commercial real estate loans increased by $16,455,000 during 1998.
This growth was the result of the Company's focus on attracting
borrowers seeking personal service from their lending institution and
the additional personnel hired in 1998 who have been able to bring
established lending relationships with them.
- Real estate construction loans decreased by $8,843,000 during 1998,
primarily due to the nature of this industry. At year-end 1997, the
Company had a number of large construction and development loans
outstanding. At year-end 1998, many of the Company's borrowing
relationships had been paid off because construction was complete and
the underlying collateral had either been sold or converted to
permanent financing with the Company or other unaffiliated lenders.
Overall construction volume during 1998 was very good, and management
expects this strong volume to continue during 1999.
- Residential real estate loans increased $27,889,000 during 1998.
Excluding the loans acquired from PSB, residential real estate loans
actually declined by approximately $18,400,000 during the year. With
long-term fixed mortgage rates at low levels during much of 1998,
borrowers continued to seek refinancing opportunities either through
the Company's secondary market operations or other mortgage banking
firms. In addition, home sales have been brisk in St. Louis and the
surrounding communities causing more loan payoffs, and the financing
for qualified borrowers is being sold in the secondary market.
Management anticipates this trend will continue into the foreseeable
future, and this was one of the factors which made the PSB acquisition
attractive to the Company. The residential real estate loans acquired
allowed the Company to replace some of the net decreases experienced
over the past several years in this category. PSB also had a
successful secondary market loan origination operation, which allowed
the Company to enjoy the advantages of PSB's experience in this area,
without the customary start-up cost necessary to be actively involved
in secondary market loan originations.
7
<PAGE> 9
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
- Consumer loans decreased $1,408,000 during 1998, after having
increased substantially during 1997. In 1997, the Company utilized the
services of a direct marketing firm to identify new and used vehicle
purchasers and solicit refinancing of those automobile loans.
Management discontinued this program during 1998, when it was
determined that additional loan volume in this area would require
additional personnel and overhead. This additional overhead would have
significantly impacted the profit margin on this line of business and
made growth in this area detrimental to earnings. The growth in 1997
allowed the Company to better utilize the capacity of its existing
organizational structure and thus was accretive to earnings.
- 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.
- The decrease in other loans was due to the repayment of a holding
company bank stock loan during the year.
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 were a
very competitive lending environment; however, acquisitions and mergers by other
institutions created opportunities to compete for lending relationships with
customers who felt 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 continued to remain committed to
maintaining acceptable asset quality levels and a solid net interest margin.
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.
8
<PAGE> 10
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
SUMMARY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(in thousands)
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 6,120 $ 5,602 $ 5,635 $ 7,144 $ 8,334
Provision charged to expense 62 60 60 70 193
Allowance of Bay-Hermann-Berger
Bank at sale - - - (327) -
Allowance of PSB at acquisition 257 - - - -
Loans charged off (536) (367) (1,219) (2,174) (2,318)
Recoveries 289 825 1,126 922 935
-------- -------- ------- ------- --------
Net recoveries (charge-offs) (247) 458 (93) (1,252) (1,383)
-------- -------- ------- ------- --------
BALANCE AT END OF YEAR $ 6,192 $ 6,120 $ 5,602 $ 5,635 $ 7,144
======== ======== ======= ======= ========
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS:
Allowance for possible loan losses:
As % of total loans 1.73% 1.87% 1.90% 1.85% 2.37%
As multiple of net charge-offs 25.1X * 60.2x 4.5x 5.2x
Net charge-offs:
As % of average total loans .07% * .03% .42% .47%
As % of allowance for possible
loan losses at year end 3.99 * 1.66 22.22 19.36
</TABLE>
* Ratios are not applicable for 1997, as recoveries exceeded charge-offs for
the year.
The allowance for possible loan losses at December 31, 1998 was $6,192,000
or 1.73% of the total loans outstanding compared to $6,120,000 or 1.87% in 1997
and $5,602,000 or 1.90% in 1996. The $72,000 increase in the allowance for
possible loan losses was largely due to the acquisition of PSB. The balance in
the allowance for possible loan loss account which was transferred over at
acquisition was $257,000. Also contributing to the increase was the $62,000
provision for possible loan losses, which remained at a relatively low level for
the fifth consecutive year. Partially offsetting these two amounts were
charge-offs, net of recoveries, of $247,000. While net charge-offs increased in
1998 from $458,000 in net recoveries in 1997 and net charge-offs of $93,000 in
1996, they represent .07% of average total loans and 3.99% of the allowance for
possible loan losses at year end. The allowance for possible loan losses as a
percentage of total loans declined from 1.87% in 1997 to 1.73% in 1998. This
decline was largely due to the additional residential real estate loans acquired
in the PSB acquisition. As the loss history in these types of credits are
significantly lower than commercial and consumer credits, they generally require
less of an allocation of the allowance for possible loan losses in the Company's
analysis of the adequacy of the allowance for possible loan losses.
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
9
<PAGE> 11
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 3,189 $ 2,977 $ 1,037 $ 1,811 $ 2,829
Past due 90 days and still accruing interest 1,361 517 146 1,463 2,419
-------- -------- ------- ------- --------
TOTAL NONPERFORMING LOANS 4,550 3,494 1,183 3,274 5,248
Other real estate owned 886 1,024 860 554 1,833
-------- -------- ------- ------- --------
TOTAL NONPERFORMING ASSETS $ 5,436 $ 4,518 $ 2,043 $ 3,828 $ 7,081
======== ======== ======= ======= ========
RATIOS:
Nonperforming loans as % of
total loans 1.27% 1.07% 0.40% 1.08% 1.74%
Nonperforming assets as % of
total loans and other real
estate owned 1.52 1.38 0.69 1.26 2.34
Nonperforming assets as % of
total assets 0.89 0.82 0.39 0.75 1.37
Allowance for possible loan losses
as % of nonperforming loans 136.09 175.16 473.54 172.11 136.13
</TABLE>
Nonperforming loans totaled $4,550,000 or 1.27% of the loan portfolio at
December 31, 1998 compared to $3,494,000 or 1.07% of the loan portfolio at
December 31, 1997. Nonperforming assets totaled $5,436,000 or 0.89% of total
assets at December 31, 1998 compared to $4,518,000 or 0.82% of total assets at
December 31, 1997. The increase in nonperforming loans and nonperforming assets
in 1998 was caused by an increase in loans past due 90 days and still accruing
interest. The majority of these credits were past due as to maturity but current
as to interest payments. Management continues to work with these borrowers to
obtain the necessary documents in order to process the renewals and remove the
credits from the delinquency listing. As is the Company's policy, if management
has concerns about the full collection of principal and interest on these loans,
they would be transferred to nonaccrual status.
The 1997 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. The borrower's reorganization plan was approved by
the court in June 1998, and the borrower is current on its payment obligations
under the plan. 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 accounting 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
10
<PAGE> 12
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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, 1998, there were no concentrations of
loans exceeding 10% of total loans which were not disclosed as a category of
loans in note 4 to the consolidated financial statements of the Company.
The amounts received in cash and recognized as interest income on
nonaccrual loans were $194,000, $113,000, and $27,000 for the years ended
December 31, 1998, 1997, and 1996, respectively. If the contractual interest on
these loans had been recognized, such income would have been $252,000, $232,000,
and $133,000 for the years ended December 31, 1998, 1997, and 1996,
respectively. There were no restructured loans at December 31, 1998 or 1997.
INVESTMENT PORTFOLIO
The Company's investment portfolio has historically provided a stable
earnings base, a secondary source of 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 fair value.
The carrying value of the Company's investment portfolio increased by
$8,792,000 during 1998. This increase was due to a combination of factors. The
portfolio increased by $10,222,000 as a result of the PSB acquisition. The
portfolio was further increased by $10,000,000 as a result of a return on equity
enhancement strategy at the Company's lead bank, which was employed to utilize a
portion of SSNB's excess capital capacity. SSNB borrowed approximately
$10,000,000 from the Federal Home Loan Bank (FHLB) to fund the purchase of
mortgage-backed and municipal securities. Both of these factors have been
partially offset by a reduction in investment purchases during the latter part
of 1998. With the yield curve being relatively flat, and very few gaps in the
Company's ladder of maturities, the Company opted to reduce the level of
investment purchases during 1998. As a result, short-term investments in federal
funds sold have increased by $12,700,000 since year-end 1997.
The Company's investment portfolio decreased by $14,155,000 in 1997 as
funds from maturing investments were used to fund loan growth. Management
believes that utilizing maturing investment securities to fund loan growth is a
more effective means of increasing net income, as compared to aggressively
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 yields available on investment
securities.
11
<PAGE> 13
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The amortized cost and fair value of the Company's available for sale and
held to maturity debt securities at December 31, 1998, 1997, and 1996 are shown
below:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
---------------------- ---------------------- ---------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
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 $ 35,368 $ 35,835 $ 26,899 $ 27,058 $ 18,861 $ 18,845
Obligations of states and
political subdivisions 6,487 6,543 300 304 445 451
Other securities 2,321 2,323 1,575 1,575 1,279 1,279
--------- --------- --------- -------- --------- ---------
44,176 44,701 28,774 28,937 20,585 20,575
Mortgage-backed securities 53,328 53,194 44,483 44,523 46,444 46,075
--------- --------- --------- -------- --------- ---------
$ 97,504 $ 97,895 $ 73,257 $ 73,460 $ 67,029 $ 66,650
========= ========= ========= ======== ========= =========
HELD TO MATURITY:
U.S. Treasury securities
and obligations of U.S.
Government agencies
and corporations $ 55,769 $ 56,614 $ 72,065 $ 72,348 $ 92,469 $ 92,396
Obligations of states and
political subdivisions 25,647 26,568 23,544 24,316 21,709 22,461
Other securities - - - - 300 300
--------- --------- --------- -------- --------- ---------
81,416 83,182 95,609 96,664 114,478 115,157
Mortgage-backed securities 2,620 2,659 4,070 4,174 6,166 6,220
--------- --------- --------- -------- --------- ---------
$ 84,036 $ 85,841 $ 99,679 $100,838 $ 120,644 $ 121,377
========= ========= ========= ======== ========= =========
</TABLE>
The Company has designated certain debt securities with a fair value of
approximately $97,895,000 and $73,460,000 as available for sale at December 31,
1998 and 1997, respectively, with the differences of $391,000 and $203,000,
respectively, between the fair value and amortized cost of such securities being
recorded as an adjustment to the carrying value of the securities. The
offsetting adjustment is recorded, net of the related tax effect, in
shareholders' equity. Debt securities with an amortized cost of $84,036,000 and
$99,679,000 at December 31, 1998 and 1997, 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, 1998 and 1997 reflected market
values of $85,841,000 and $100,838,000, respectively, which represent net
unrealized gains of $1,805,000 and $1,159,000 in 1998 and 1997, 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. The
increase in the available for sale portfolio was the result of management
placing both the PSB securities and the securities purchased as part of the
return on equity enhancement strategy in this category. This will give the
Company greater flexibility in reacting to changes in the interest rate
environment that affect these securities. The decrease in the held to maturity
portfolio was largely due to maturities during the year.
The market value of the Company's portfolio in relationship to the
amortized cost of the portfolio remained relatively stable during 1998 and 1997.
There were no sales of securities during 1998, 1997, and 1996.
At December 31, 1998, there were no securities of a single issuer that
exceeded 10% of shareholders' equity.
12
<PAGE> 14
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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 $39,926,000 and $16,087,000
in 1998 and 1997, respectively.
The increase in 1998 can be attributed to the PSB acquisition, which
included $55,264,000 in deposits. Excluding the deposits acquired, the Company's
deposits declined $15,338,000 during the year, which was the result of a
combination of two factors. First, management anticipated losing approximately
10-12% of the PSB deposit base subsequent to the acquisition. Depositors unhappy
with the elimination of free checking, changes in service charge routines, less
aggressive certificate of deposit rates, and other variables typically cause
deposit attrition in most "in market" merger transactions. Secondly, with the
Company's loan-to-deposit ratio still below its peer group average and the
addition of the PSB deposits, the Company was less aggressive in pursuing time
deposits during 1998. As a result, excluding the PSB deposits acquired, time
deposits under $100,000 declined by approximately $9,000,000 during 1998. With
considerable opportunity to improve the Company's asset mix and increase the
loan-to-deposit ratio, management anticipates this trend toward declining time
deposits may continue. Although management was less aggressive on rates during
1998, a concerted effort was made to ensure deposit declines were not
experienced within the Company's core deposit base.
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 exceed $100,000.
The following table shows the breakdown of deposits at December 31, 1998,
1997, and 1996:
<TABLE>
<CAPTION>
(dollars in thousands)
1998 1997 1996
----------------------- --------------------- ---------------------
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 $ 70,436 13% $ 61,308 12% $ 58,046 12%
Interest-bearing demand deposits 142,411 27 139,177 29 128,474 28
Savings deposits 65,351 13 56,627 12 57,115 12
Time deposits under $100,000 196,930 38 172,830 36 174,102 37
----------- --- ----------- --- ----------- ---
Total core deposits 475,128 91 429,942 89 417,737 89
Time deposits $100,000 and
over 48,161 9 53,421 11 49,539 11
----------- --- ----------- --- ----------- ---
Total deposits $ 523,289 100% $ 483,363 100% $ 467,276 100%
=========== === =========== === =========== ===
</TABLE>
13
<PAGE> 15
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
The following table shows the amount of time deposits $100,000 and over by
time remaining until maturity at December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Three months or less $ 29,546 $ 24,733 $ 12,899
Over three through six months 6,371 12,494 19,850
Over six through twelve months 8,096 11,328 11,904
Over twelve months 4,148 4,866 4,886
---------- -------- ---------
$ 48,161 $ 53,421 $ 49,539
========== ======== =========
</TABLE>
The following table reflects the average daily balances, by category, at
December 31, 1998, 1997, and 1996, and their weighted average interest rates for
the respective years:
<TABLE>
<CAPTION>
(dollars in thousands)
1998 1997 1996
--------------------- --------------------- ----------------------
AVERAGE AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C>
Noninterest-bearing demand
deposits $ 62,235 - % $ 55,323 - % $ 54,965 - %
Interest-bearing demand deposits 146,149 3.32 130,046 3.34 123,924 3.33
Savings deposits 61,632 2.49 58,029 2.51 60,332 2.53
Time deposits under $100,000 188,065 5.32 173,382 5.37 175,239 5.40
Time deposits $100,000 and over 52,026 5.23 52,601 5.32 41,456 5.18
----------- ==== ----------- ==== ----------- ====
$ 510,107 $ 469,381 $ 455,916
=========== =========== ===========
</TABLE>
OTHER BORROWINGS
Securities sold under agreements to repurchase (REPO) represent an
alternative used by larger commercial deposit customers as a cash management
tool. Utilizing a daily REPO sweep account, commercial customers can earn
interest on their excess funds, while still ensuring these balances are
available to cover their operating needs. As with any transaction oriented cash
management account, the balances fluctuate based on the customer's cash
requirements on a given day. The Company had more customers utilizing the REPO
sweep in 1998 versus 1997; however, the individual year-end balances were lower.
The increase in FHLB borrowings was due, in part, to $10,000,000 borrowed
to fund the Company's return on equity enhancement strategy. The remainder of
the increase was largely due to borrowings acquired in the PSB acquisition.
The following table is a summary of other borrowings at December 31, 1998,
1997, and 1996:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities sold under agreements
to repurchase $ 2,949 $ 5,333 $ 1,623
FHLB borrowings 14,287 - -
---------- ------- --------
$ 17,236 $ 5,333 $ 1,623
========== ======= ========
</TABLE>
14
<PAGE> 16
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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)
1998 1997 1996
--------------------- -------------------- --------------------
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%
Securities sold under
agreements to
repurchase 3,289 4.44 5,053 4.47 893 4.37
U.S. Treasury tax and loan
notes - - - - 703 5.97
FHLB borrowings 10,659 5.72 - - - -
-------- ==== -------- ==== -------- ====
$ 13,948 $ 5,095 $ 1,784
======== ======== ========
Total maximum short-term
borrowings outstanding
at any month end during
the year $ 22,637 $ 10,693 $ 3,308
======== ======== ========
Average short-term borrowings
rate at end of year 5.43% 4.40% 4.85%
==== ==== ====
</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.
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.
15
<PAGE> 17
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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, 1998 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 1.15x is within an acceptable range.
16
<PAGE> 18
BALANCE SHEET ANALYSIS (CONT.)
Southside Bancshares Corp. and Subsidiaries
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)
December 31, 1998
<TABLE>
<CAPTION>
OVER OVER
3 MONTHS 1 YEAR
3 MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 29,900 $ -- $ -- $ -- $ 29,900
Investments available for sale 17,186 18,121 40,162 22,426 97,895
Investments held to maturity 8,022 14,170 40,550 21,294 84,036
Loans, net of unearned discount (1) 186,409 61,821 76,137 32,621 356,988
--------- --------- --------- --------- ---------
Total interest-earning
assets 241,517 94,112 156,849 76,341 568,819
--------- --------- --------- --------- ---------
Cumulative interest-earning assets 241,517 335,629 492,478 568,819 568,819
--------- --------- --------- --------- ---------
Interest-bearing liabilities:
Interest-bearing demand deposits 49,844 28,482 35,603 28,482 142,411
Savings deposits 22,873 13,070 16,338 13,070 65,351
Time deposits under $100,000 50,938 80,725 65,267 -- 196,930
Time deposits $100,000 and over 29,546 14,467 4,148 -- 48,161
Securities sold under agreements to
repurchase 2,949 -- -- -- 2,949
FHLB borrowings -- -- 2,330 11,957 14,287
--------- --------- --------- --------- ---------
Total interest-bearing
liabilities 156,150 136,744 123,686 53,509 470,089
--------- --------- --------- --------- ---------
Cumulative interest-bearing
liabilities 156,150 292,894 416,580 470,089 470,089
--------- --------- --------- --------- ---------
Gap analysis:
Interest sensitivity gap $ 85,367 $ (42,632) $ 33,163 $ 22,832 $ 98,730
========= ========= ========= ========= =========
Cumulative interest
sensitivity gap $ 85,367 $ 42,735 $ 75,898 $ 98,730 $ 98,730
========= ========= ========= ========= =========
Cumulative gap ratio of interest-
earning assets to interest-bearing
liabilities 1.55X 1.15X 1.18X 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.
17
<PAGE> 19
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 in St. Louis, 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.
18
<PAGE> 20
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, 1998 and 1997 were 17.41% and 17.38%, respectively, which included Tier I
capital ratios of 16.15% and 16.12%, 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 10.01% and 10.34% at December 31, 1998 and 1997, 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, 1998, 1997, and 1996. 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, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
(dollars in thousands)
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
RISK-BASED CAPITAL:
Tier I capital $ 61,036 $ 56,279 $ 52,778
Total capital 65,778 60,664 56,767
Risk-weighted assets 377,905 349,079 317,494
RISK-BASED CAPITAL RATIOS:
Tier I capital to risk-weighted assets 16.15% 16.12% 16.62%
Minimum requirement 4.00 4.00 4.00
Total capital to risk-weighted assets 17.41 17.38 17.88
Minimum requirement 8.00 8.00 8.00
============ ============ ============
- ----------------------------------------------------------------------------------------------------------
TIER I CAPITAL:
Tier I capital $ 61,036 $ 56,279 $ 52,778
Average fourth quarter total
consolidated assets less
intangibles 609,771 544,380 521,523
LEVERAGE CAPITAL RATIOS:
Tier I capital to average total
consolidated assets less
intangibles 10.01% 10.34% 10.12%
Minimum requirement 3.00 3.00 3.00
=========== =========== ===========
</TABLE>
19
<PAGE> 21
RESULTS OF OPERATIONS
Southside Bancshares Corp. and Subsidiaries
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $6,810,000, $6,302,000, and $6,158,000 for the years ended
December 31, 1998, 1997, and 1996, respectively, which resulted in basic
earnings per common share of $0.82, $0.77, and $0.76 in each of those years. Net
income for 1998 represents a record level of earnings for the Company and the
fifth consecutive year in which the Company has achieved record core net
earnings. 1998's earnings exceeded the previous record of $6,734,000 established
in 1995; however, 1995's net income included $1,370,000 in nonrecurring items.
The increase in net income in 1998 versus 1997 was $508,000 or 8%, and was
largely due to an increase in net interest income.
The net income in 1998 results in a return on average assets (ROA) of
1.15%, compared to 1.18% and 1.20% in 1997 and 1996, respectively. The decline
in ROA in 1998 was largely the result of growth at the Company's subsidiary
banks, and the acquisition of PSB, as the full effects of the acquisition will
not be realized until 1999. While the Company believes ROA is still a valuable
tool for measuring performance, management is increasingly looking for
opportunities to better utilize its capital and improve return on average
shareholders' equity (ROE). The Company's ROE in 1998 was 11.12%, compared to
11.44% and 12.27% in 1997 and 1996, respectively. As indicated previously, the
Company has begun to focus on opportunities to improve ROE. The PSB acquisition
and the return on equity enhancement strategy are two examples of efforts
undertaken during 1998. While these two actions were not sufficient to prevent
ROE from declining in 1998, they did reduce the amount of the decline. In 1996,
ROE declined 320 basis points; in 1997, ROE declined 83 basis points; and, in
1998, ROE declined only 32 basis points. As evidenced by this trend, management
believes its actions to better utilize the Company's capital are stemming the
decline in ROE. Management anticipates that with further actions during 1999,
ROE can be increased for the first time in four years.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis increased by $991,000,
$529,000, and $584,000 in 1998, 1997, and 1996, respectively. The 1998 increase
was due to an increase in average earning assets, partially offset by a decrease
in the Company's net interest margin. Average earning assets increased
$46,811,000 during 1998 as a result of the PSB acquisition, but the overall
interest rate earned declined from 7.95% in 1997 to 7.74% in 1998. This decline
in yield was due, in part, to decreases in the prime lending rate during 1998,
which impacts the rate earned on many commercial and home equity loans. The
decline was also caused by the addition of PSB's adjustable rate mortgage loan
portfolio, which had a lower yield than the Company's existing portfolio at the
time of the acquisition.
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.
20
<PAGE> 22
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,
--------------------------------------------
1998
--------------------------------------------
AVERAGE
INTEREST RATES
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID
------- ------- ----
<S> <C> <C> <C>
ASSETS:
Loans, net of unearned discount (1) (2) (3) $ 345,902 $ 30,085 8.70%
Investments in debt securities:
Taxable (4) 153,345 9,172 5.98
Exempt from Federal income taxes (3) (4) 29,020 2,326 8.01
Short-term investments 24,975 1,261 5.05
---------- ---------
Total interest-earning assets/
interest income/overall yield (3) 553,242 42,844 7.74
--------- ====
Allowance for possible loan losses (6,160)
Cash and due from banks 15,097
Other assets 27,945
-----------
TOTAL ASSETS $ 590,124
===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing demand deposits $ 146,149 4,848 3.32%
Savings deposits 61,632 1,535 2.49
Time deposits under $100,000 188,065 9,997 5.32
Time deposits $100,000 and over 52,026 2,721 5.23
Short-term borrowings 3,289 146 4.44
FHLB borrowings 10,659 610 5.72
ESOP debt - - -
------------ ---------
Total interest-bearing liabilities/
interest expense/overall rate 461,820 19,857 4.30
--------- ====
Noninterest-bearing demand deposits 62,235
Other liabilities 4,813
Shareholders' equity 61,256
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 590,124
===========
NET INTEREST INCOME $ 22,987
==========
NET INTEREST MARGIN ON AVERAGE INTEREST-EARNING ASSETS 4.15%
====
</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.
21
<PAGE> 23
RESULTS OF OPERATIONS (CONT.)
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(dollars in thousands)
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------- -----------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C>
$ 311,266 $ 27,937 8.98% $ 295,683 $ 27,164 9.19%
155,938 9,478 6.08 148,780 8,917 5.99
23,124 1,953 8.45 22,943 1,918 8.36
16,103 871 5.41 18,744 994 5.30
---------- ---------- ----------- ----------
506,431 40,239 7.95 486,150 38,993 8.02
---------- ==== ---------- ====
(6,061) (5,646)
14,817 15,317
20,622 19,169
---------- -----------
$ 535,809 $ 514,990
========== ===========
$ 130,046 4,346 3.34% $ 123,924 4,125 3.33%
58,029 1,459 2.51 60,332 1,529 2.53
173,382 9,309 5.37 175,239 9,462 5.40
52,601 2,796 5.32 41,456 2,148 5.18
5,095 228 4.47 1,784 92 5.16
- - - - - -
1,235 105 8.50 2,060 170 8.25
---------- ---------- ----------- ----------
420,388 18,243 4.34 404,795 17,526 4.33
---------- ==== ---------- ====
55,323 54,965
5,022 5,038
55,076 50,192
---------- -----------
$ 535,809 $ 514,990
========== ===========
$ 21,996 $ 21,467
========== ==========
4.34% 4.42%
==== ====
</TABLE>
22
<PAGE> 24
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,
-------------------------------------------------------------------------------------
1998 COMPARED TO 1997 1997 Compared to 1996
---------------------------------------- ----------------------------------------
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 $ 2,148 $ 3,040 $ (892) $ 773 $ 1,405 $ (632)
Investment securities:
Taxable (306) (154) (152) 561 427 134
Exempt from Federal income
taxes 373 479 (106) 35 15 20
Short-term investments 390 451 (61) (123) (143) 20
------- ------- ------- ------- ------- -------
TOTAL INTEREST INCOME 2,605 3,816 (1,211) 1,246 1,704 (458)
------- ------- ------- ------- ------- -------
Changes in interest expense on:
Interest-bearing demand
deposits 502 528 (26) 221 208 13
Savings deposits 76 88 (12) (70) (58) (12)
Time deposits under $100,000 688 776 (88) (153) (100) (53)
Time deposits $100,000
and over (75) (29) (46) 648 589 59
Securities sold under agreements
to repurchase (82) (80) (2) 136 150 (14)
FHLB borrowings 610 610 -- -- -- --
ESOP debt (105) (105) -- (65) (70) 5
------- ------- ------- ------- ------- -------
TOTAL INTEREST EXPENSE 1,614 1,788 (174) 717 719 (2)
------- ------- ------- ------- ------- -------
CHANGE IN NET INTEREST INCOME $ 991 $ 2,028 $(1,037) $ 529 $ 985 $ (456)
======= ======= ======= ======= ======= =======
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
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 provision for possible loan losses was again
relatively low in 1998, largely due to the fact that the Company experienced a
relatively low level of net charge-offs during 1998, and asset quality remains
good. The provision for possible loan losses was $62,000 in 1998 and $60,000 in
1997 and 1996.
NONINTEREST INCOME
Noninterest income increased $499,000 in 1998 due to increases in gains on
the sales of loans and trust department revenue. The increase in gains on the
sales of loans was the result of the PSB acquisition. One of the key components
of this transaction was PSB's strong secondary market loan origination
operation. As a commercial
23
<PAGE> 25
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
banking organization, the Company had not focused on the secondary market
previously. The acquisition of PSB allowed the Company to enter this line of
business with an experienced staff, extensive referral sources, operating
policies and procedures, and a network of investors to purchase the loans
originated. Management had considered entering this market for some time, but
believed a start-up operation in this line of business would not be profitable
for an extended period of time. The Company has consistently lagged behind its
peers in other income, and management viewed this acquisition as an opportunity
to make significant improvements in this area. The increase in trust department
revenue was due to trust department growth during the year. Although total
assets under management declined by approximately $30,000,000 during 1998, the
decline was the result of the loss of an $80,000,000 bond syndication, which was
partially offset by $50,000,000 in new personal and employee benefit trust
accounts. The bond syndication account was a relatively low trust fee account,
whereas the new accounts added are generally under the department's normal fee
structure. The increase in net losses in other real estate owned (OREO)
transactions was 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.
Noninterest income increased $162,000 in 1997 due to increases in trust
department and service charge revenue, which were partially offset by net losses
on the disposition of OREO. The $128,000 increase in trust fees 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. The increase in
service charge revenue was attributable to the Company's focus on improving
revenues in this area.
NONINTEREST EXPENSE
Noninterest expense increased $972,000 during 1998. This increase was
primarily the result of the acquisition of PSB. The increase in salaries and
employee benefits resulted from the addition of PSB's employees, the commissions
paid to the mortgage loan originators, and normal pay increases for the
Company's existing employees. These increases in compensation expense were
partially offset by a $375,000 curtailment gain resulting from the termination
of the Company's pension plan. Also contributing to the 1998 increase was an
increase in data processing expense. This was partially the result of conversion
expenses associated with converting PSB's accounts into the Company's data
processing system, as well as expenses associated with Year 2000 testing and
preparedness. Other noninterest expense increased during the year as the Company
increased its commitment to advertising during the year. 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. These
increases were partially offset by a decrease in net occupancy expense, which
resulted from several large furniture and equipment items becoming fully
depreciated, and an increase in rental income. With the completion of its lead
bank's new three-story banking facility, a new two-story facility which is
expected to be opened by the State Bank of Jefferson County in 1999, and various
updates scheduled for its existing locations, management expects to experience
an increase in net occupancy expense in 1999.
Noninterest expense increased $622,000 during 1997 as a result of 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 OREO expense, amortization of investments
in low-income housing projects, and advertising expense. The increase in OREO
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 the
occupancy rate had increased to approximately 71% as of December 31, 1998. With
the occupancy rate in excess of 70%, the property was self-sufficient and
required no cash payments from the Company in 1998. The amortization of
investments in low-income projects relate to the aforementioned mobile home
park, as well as investments in four
24
<PAGE> 26
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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 assists 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.
INCOME TAXES
Federal income tax expense was $2,618,000 in 1998 compared to $2,308,000
and $2,177,000 in 1997 and 1996, respectively. The changes in Federal income tax
expense have been relatively consistent with the changes in pretax income,
although the Company's effective tax rate increased to 27.8% in 1998 from 26.8%
in 1997 and 26.1% in 1996. The increase in the effective tax rate in both 1998
and 1997 was a result of an increase in net income and a stable base of
tax-exempt income. Management purchased tax-exempt securities during 1998 to
partially offset this trend.
THE YEAR 2000 ISSUE
The Year 2000 issue relates to computer programs and systems that have used
a two-digit field rather than a four-digit field to represent the year.
Therefore, these programs do not properly recognize a year that begins with "20"
instead of "19". 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, all of which 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 the second quarter of 1999. 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 a customer's inability 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 the systems of these outside parties will be
remediated on a timely basis or 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 the
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
$250,000 in direct costs associated with Year 2000 readiness efforts. The
Company estimates that total expenditures will approximate $350,000 through the
Year 2000. This includes 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 have a material adverse effect on
the Company's results of operations.
25
<PAGE> 27
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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 continued 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.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (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.
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.
26
<PAGE> 28
RESULTS OF OPERATIONS (CONT.)
Southside Bancshares Corp. and Subsidiaries
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 $11,408,000 and $6,661,000 as of December 31, 1998 and
1997, respectively, while the fair value of financial instrument liabilities was
less than the amounts included in the balance sheet by $1,609,000 as of December
31, 1998 and was equal to the amounts included in the balance sheet as of
December 31, 1997.
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, 1998 and do not reflect amounts which would be ultimately
realized in the normal course of business.
COMMON STOCK - MARKET PRICE AND DIVIDENDS
The Company's common stock is traded on The NASDAQ Stock Market 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>
1998 1997
------------------------------------ --------------------------------------
QUARTER 1ST 2ND 3RD 4TH 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low bid $ 11.42 $ 12.08 $ 11.17 $ 11.75 $ 7.58 $ 7.17 $ 11.17 $ 11.08
High bid 12.58 14.92 13.00 15.00 8.33 12.33 13.50 11.83
Dividends paid
per common
share .067 .070 .073 .080 .053 .057 .060 .063
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
The market price of the Company's common stock on March 4, 1999 was $11.625
bid, $12.125 asked. The approximate number of shareholders of the common stock
of the Company as of March 4, 1999 was 1,000.
In 1998, the Company effected a three-for-one stock split. The effects of
this split have been applied to the share and per share data on a retroactive
basis to all of the financial data contained throughout this report.
FINANCIAL REPORT
A copy of the Company's 1998 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 22, 1999 at South Side National Bank's Telegraph
facility, which is located at 4111 Telegraph Road, 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.
TRANSFER AGENT
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.
27
<PAGE> 29
SOUTHSIDE BANCSHARES CORP.
3606 Gravois Avenue
St. Louis, MO 63116
(314) 776-7000
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
March 5, 1999
The management of Southside Bancshares Corp. (the Company) 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 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 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.
/s/ Thomas M. Teschner /s/ Joseph W. Pope
Thomas M. Teschner Joseph W. Pope
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
28
<PAGE> 30
[KPMG LOGO]
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, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
March 5, 1999
29
<PAGE> 31
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Cash and due from banks ....................................... $ 17,924 $ 18,302
Federal funds sold ............................................ 29,900 17,200
Investments in debt securities:
Available for sale, at fair value ........................ 97,895 73,460
Held to maturity, at amortized cost (approximate
fair value of $85,841 in 1998 and $100,838 in 1997) ... 84,036 99,679
--------- ---------
Total investments in debt securities ............ 181,931 173,139
--------- ---------
Loans, net of unearned discount ............................... 356,988 326,437
Less allowance for possible loan losses .................. 6,192 6,120
--------- ---------
Loans, net ...................................... 350,796 320,317
--------- ---------
Bank premises and equipment ................................... 16,152 10,866
Other assets .................................................. 13,590 10,040
--------- ---------
TOTAL ASSETS .................................... $ 610,293 $ 549,864
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ...................................... $ 70,436 $ 61,308
Interest-bearing ......................................... 452,853 422,055
--------- ---------
Total deposits .................................. 523,289 483,363
Securities sold under agreements to repurchase ................ 2,949 5,333
FHLB borrowings ............................................... 14,287 --
Other liabilities ............................................. 4,804 4,515
--------- ---------
Total liabilities ............................... 545,329 493,211
--------- ---------
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,
8,985,378 shares issued and outstanding in 1998 and
8,577,030 in 1997 ..................................... 8,985 8,577
Surplus .................................................. 5,248 305
Retained earnings ........................................ 55,249 50,841
Unearned ESOP shares ..................................... (1,186) (1,384)
Treasury stock, at cost, 324,020 and 184,020 shares in
1998 and 1997, respectively ........................... (3,590) (1,820)
Accumulated other comprehensive income ................... 258 134
--------- ---------
Total shareholders' equity ...................... 64,964 56,653
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $ 610,293 $ 549,864
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans.........................................$ 30,259 $ 27,682 $ 26,691
Interest on investments in debt securities available for sale:
Taxable......................................................... 4,614 4,336 3,701
Exempt from Federal income taxes................................ 162 24 32
Interest on investments in debt securities held to maturity:
Taxable......................................................... 4,558 5,142 5,216
Exempt from Federal income taxes................................ 1,373 1,265 1,234
Interest on short-term investments................................. 1,261 871 994
---------- ---------- ----------
TOTAL INTEREST INCOME.................................... 42,227 39,320 37,868
---------- ---------- ----------
Interest expense:
Interest on deposits............................................... 19,101 17,910 17,264
Interest on short-term borrowings.................................. 146 228 92
Interest on FHLB borrowings........................................ 610 - -
Interest on ESOP debt.............................................. - 105 170
---------- ---------- ----------
TOTAL INTEREST EXPENSE................................... 19,857 18,243 17,526
---------- ---------- ----------
NET INTEREST INCOME...................................... 22,370 21,077 20,342
Provision for possible loan losses...................................... 62 60 60
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES............................. 22,308 21,017 20,282
---------- ---------- ----------
Noninterest income:
Trust fees......................................................... 1,142 1,046 918
Service charges on deposit accounts................................ 1,330 1,330 1,256
Net (losses) gains on sales of other real estate owned and other
foreclosed property............................................. (104) (64) 29
Gains on the sales of loans........................................ 430 35 -
Other.............................................................. 533 485 467
---------- ---------- ----------
TOTAL NONINTEREST INCOME................................. 3,331 2,832 2,670
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits..................................... 8,247 7,561 7,463
Net occupancy and equipment expense................................ 2,251 2,384 2,328
Data processing.................................................... 573 465 467
Federal Deposit Insurance Corporation assessment................... 97 47 138
Attorney fees...................................................... 327 407 376
Other.............................................................. 4,716 4,375 3,845
---------- ---------- ----------
TOTAL NONINTEREST EXPENSE................................ 16,211 15,239 14,617
---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE.......................................... 9,428 8,610 8,335
Federal income tax expense.............................................. 2,618 2,308 2,177
---------- ---------- ----------
NET INCOME...............................................$ 6,810 $ 6,302 $ 6,158
============= ============ ============
SHARE DATA:
Earnings per common share - basic.................................$ 0.82 $ 0.77 $ 0.76
============= ============ ============
Earnings per common share - diluted................................$ 0.80 $ 0.75 $ 0.75
============= ============ ============
Dividends paid per common share....................................$ 0.29 $ 0.23 $ 0.17
============= ============ ============
Average common shares outstanding.................................. 8,297,250 8,207,577 8,138,325
============= ============ ============
Average common shares outstanding, including
potentially dilutive shares..................................... 8,554,635 8,394,315 8,190,642
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 33
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ACCUMULATED
UNEARNED OTHER COM-
COMMON RETAINED ESOP TREASURY PREHENSIVE
STOCK SURPLUS EARNINGS SHARES STOCK INCOME TOTAL
----- ------- -------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ......... $ 8,577 $ 48 $ 41,655 $ (2,688) $ (167) $ (125) $ 47,300
Comprehensive income:
Net income ...................... -- -- 6,158 -- -- -- 6,158
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect . -- -- -- -- -- (129) (129)
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- 6,158 -- -- (129) 6,029
Cash dividends paid ($.17 per
share) .......................... -- -- (1,365) -- -- -- (1,365)
Allocation of 37,062 shares to
ESOP participants ............... -- 53 -- 198 -- -- 251
Purchase of 170,442 shares by ESOP ... -- -- -- 909 -- -- 909
Purchase of 38,940 common shares
for treasury .................... -- -- -- -- (283) -- (283)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 ......... 8,577 101 46,448 (1,581) (450) (254) 52,841
Comprehensive income:
Net income ...................... -- -- 6,302 -- -- -- 6,302
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect . -- -- -- -- -- 388 388
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- 6,302 -- -- 388 6,690
-------- -------- -------- -------- -------- -------- --------
Cash dividends paid ($.23 per share) . -- -- (1,909) -- -- -- (1,909)
Allocation of 37,062 shares to
ESOP participants ............... -- 204 -- 197 -- -- 401
Purchase of 117,000 common shares
for treasury .................... -- -- -- -- (1,370) -- (1,370)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 ......... 8,577 305 50,841 (1,384) (1,820) 134 56,653
Comprehensive income:
Net income ...................... -- -- 6,810 -- -- -- 6,810
Change in net unrealized gain
(loss) on available for sale
securities, net of tax effect . -- -- -- -- -- 124 124
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- 6,810 -- -- 124 6,934
Cash dividends paid ($.29 per share) . -- -- (2,402) -- -- -- (2,402)
Allocation of 37,062 shares to
ESOP participants ............... -- 263 -- 198 -- -- 461
Stock options exercised .............. -- (90) -- -- 90 -- --
Issuance of 408,348 common shares
in acquisition .................. 408 4,770 -- -- -- -- 5,178
Purchase of 201,000 common shares
for treasury .................... -- -- -- -- (1,860) -- (1,860)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998 ......... $ 8,985 $ 5,248 $ 55,249 $ (1,186) $ (3,590) $ 258 $ 64,964
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 34
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 6,810 $ 6,302 $ 6,158
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................... 1,686 1,626 1,920
Provision for possible loan losses .............................. 62 60 60
Provision for deferred income taxes ............................. (7) (286) 50
Gains on the sales of loans ..................................... (430) (35) --
Net losses (gains) on sales of other real estate owned and
other foreclosed property ................................. 104 64 (29)
Decrease in income taxes payable ................................ (370) (245) (381)
(Increase) decrease in accrued interest receivable .............. (234) 34 118
Increase in accrued interest payable ............................ 280 32 10
ESOP compensation expense ....................................... 461 401 251
Other operating activities, net ................................. (1,059) 403 (495)
-------- -------- --------
Total adjustments .......................................... 493 2,054 1,504
-------- -------- --------
Origination of loans for sale ......................................... (31,798) (2,933) --
Proceeds from sales of loans .......................................... 32,228 2,968 --
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................. 7,733 8,391 7,662
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold ......................... (12,700) (3,700) 5,618
Proceeds from maturities of and principal payments on debt securities:
Available for sale ................................................. 31,703 14,092 7,984
Held to maturity ................................................... 35,288 33,461 37,260
Purchases of debt securities:
Available for sale ................................................. (45,927) (19,391) (24,729)
Held to maturity ................................................... (19,811) (13,720) (48,720)
Purchase of life insurance ............................................ -- -- (1,250)
Net decrease (increase) in loans ...................................... 15,057 (32,596) 7,083
Recoveries of loans previously charged off ............................ 289 825 1,126
Purchases of bank premises and equipment .............................. (4,423) (1,213) (1,194)
Proceeds from sales of other real estate owned ........................ 241 258 798
Cash and cash equivalents acquired, net of cash paid .................. 8,238 -- --
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........ 7,955 (21,984) (16,024)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits ................ 5,423 13,477 (1,122)
Net (decrease) increase in time deposits .............................. (20,760) 2,610 10,831
Net (decrease) increase in short-term borrowings ...................... (2,384) 3,710 844
Net increase (decrease) in FHLB borrowings ............................ 5,917 (1,779) (299)
Payments to acquire treasury stock .................................... (1,860) (1,370) (283)
Cash dividends paid ................................................... (2,402) (1,909) (1,365)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........ (16,066) 14,739 8,606
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ......................................... (378) 1,146 244
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................... 18,302 17,156 16,912
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ..................................... $ 17,924 $ 18,302 $ 17,156
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings ................................ $ 20,137 $ 18,275 $ 17,516
Income taxes ....................................................... 2,601 2,498 2,497
======== ======== ========
Noncash transactions:
Transfers to other real estate owned in settlement of loans ........ $ 174 $ 492 $ 1,059
Issuance of common shares in acquisition ........................... 5,178 -- --
Issuance of stock under stock option plan .......................... 90 -- --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 35
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
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.
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 two
categories: available for sale or held to maturity. 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 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 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.
34
<PAGE> 36
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
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.
LOANS HELD FOR SALE
In its lending activities, the Company originates residential mortgage
loans intended for sale in the secondary market. Loans held for sale are carried
at the lower of cost or fair value, which is determined on an aggregate basis.
Gains or losses on the sale of loans held for sale are determined on a specific
identification method.
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.
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 being
amortized over 10 years, the estimated life of the deposit base acquired.
Intangible assets totaled $6,672,000 and $3,151,000 at December 31, 1998 and
1997, respectively, with accumulated amortization of $2,998,000 and $2,694,000,
respectively.
INCOME TAXES
The Company and its subsidiary banks file consolidated income tax returns.
Provisions for income taxes are based on the tax effects of transactions 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.
TREASURY STOCK
The purchase of the Company's common shares is recorded at cost. Upon
subsequent reissuance, the treasury stock account is reduced by the average cost
basis of such common shares purchased.
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
35
<PAGE> 37
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
Company or its subsidiaries. Trust department operating expenses are included in
noninterest expenses on the consolidated statements of income.
EARNINGS PER COMMON SHARE
In 1998, the Company effected a three-for-one stock split. The effects of
this split have been applied to the share and per share data on a retroactive
basis to all of the financial data contained throughout the consolidated
financial statements and notes to consolidated financial statements.
Basic earnings per share (EPS) is computed by dividing net income 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.
CASH EQUIVALENTS
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.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income (SFAS
130), during 1998. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The Company reports comprehensive income in the
consolidated statements of shareholders' equity and comprehensive income. The
adoption of SFAS 130 did not have an effect on the financial position of the
Company.
SEGMENT INFORMATION
In 1998, the Company adopted 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 adoption of SFAS 131 did not have an effect on the financial
position of the Company.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform with the
current year presentation.
NOTE 2 -- 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 $3,456,000 in cash and
issued 408,348 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 of approximately $3,500,000 is
included in other assets in the Company's consolidated balance sheets.
The following information presents unaudited pro forma condensed results of
operations of the Company for the years ended December 31, 1998 and 1997,
combined with the acquisition of PSB, as if the Company completed the
transaction on January 1, 1997.
<TABLE>
<CAPTION>
(in thousands,
except share data)
Years ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Net interest income $ 23,255 $ 22,795
Provision for possible loan losses 74 94
Net income 6,913 6,363
Average shares outstanding 8,433,366 8,343,693
Average shares outstanding, including
potentially dilutive shares 8,690,751 8,530,431
Earnings per common share:
Basic $ 0.82 $ 0.76
Diluted 0.80 0.75
</TABLE>
36
<PAGE> 38
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
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 intangible assets 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.
NOTE 3 -- INVESTMENTS IN DEBT
SECURITIES
The amortized cost and fair values of debt securities classified as
available for sale at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998
GROSS
UNREALIZED
AMORTIZED ----------------- FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Govern-
ment agencies
and corpora-
tions $ 35,368 $ 467 $ - $ 35,835
Obligations of
states and
political
subdivisions 6,487 62 (6) 6,543
Mortgage-backed
securities 53,328 269 (403) 53,194
Other securities 2,321 2 -- 2,323
-------- -------- -------- --------
$ 97,504 $ 800 $ (409) $ 97,895
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
1997
GROSS
UNREALIZED
AMORTIZED ----------------- Fair
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>
The amortized cost and fair value of debt securities classified as
available for sale at December 31, 1998, 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)
AMORTIZED FAIR
COST VALUE
--------- -----
<S> <C> <C>
Due in one year or less $ 4,627 $ 4,652
Due after one year through
five years 22,093 22,422
Due after five years through
ten years 8,033 8,166
Due after ten years 7,202 7,240
Mortgage-backed securities 53,328 53,194
Federal Home Loan Bank stock -
no stated maturity 1,770 1,770
Federal National Mortgage Association
stock - no stated maturity 5 5
Federal Reserve Bank stock -
no stated maturity 446 446
-------- --------
$ 97,504 $ 97,895
======== ========
</TABLE>
The amortized cost and fair values of debt securities classified as held to
maturity at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998
GROSS
UNREALIZED
AMORTIZED ----------------- FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Govern-
ment agencies
and corpora-
tions $ 55,769 $ 884 $ (39) $ 56,614
Obligations of
states and
political
subdivisions 25,647 925 (4) 26,568
Mortgage-backed
securities 2,620 39 -- 2,659
-------- -------- -------- --------
$ 84,036 $ 1,848 $ (43) $ 85,841
======== ======== ======== ========
</TABLE>
37
<PAGE> 39
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
<TABLE>
<CAPTION>
(in thousands)
1997
------------------------------------
Amor- Gross
tized Unrealized Fair
Cost Gains Losses Value
--------- ------ ------ --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies and corporations $ 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>
The amortized cost and fair value of debt securities classified as held to
maturity at December 31, 1998, 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)
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 19,572 $ 19,716
Due after one year through five years 40,550 41,470
Due after five years through ten years 16,625 17,223
Due after ten years 4,669 4,773
Mortgage-backed securities 2,620 2,659
--------- ---------
$ 84,036 $ 85,841
========= =========
</TABLE>
There were no sales of debt securities during 1998, 1997, and 1996.
The carrying value of securities pledged to secure deposits and
collateralize borrowings amounted to $57,015,000 and $69,100,000 at December 31,
1998 and 1997, respectively.
NOTE 4 -- LOANS
Loans, by category, at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
--------- ---------
<S> <C> <C>
Commercial, financial, and agricultural $ 68,166 $ 69,168
Real estate - commercial 115,214 98,759
Real estate - construction 21,993 30,836
Real estate - residential 119,917 92,028
Consumer 22,219 23,627
Industrial revenue bonds 4,717 5,517
Other 4,762 6,502
--------- ---------
Total loans 356,988 326,437
Less allowance for possible loan losses 6,192 6,120
--------- ---------
Loans, net $ 350,796 $ 320,317
========= =========
</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,
Ste. Genevieve, St. Louis, 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.
The Company's investment in industrial revenue bonds are classified as held
to maturity. The estimated fair value of these instruments was $4,906,000 and
$5,738,000 at December 31, 1998 and 1997, respectively.
Transactions in the allowance for possible loan losses for the years ended
December 31, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 6,120 $ 5,602 $ 5,635
Provision charged to expense 62 60 60
Allowance of PSB at acquisition 257 - -
Loans charged off (536) (367) (1,219)
Recoveries 289 825 1,126
------- ------- -------
Balance at end of year $ 6,192 $ 6,120 $ 5,602
======= ======= =======
</TABLE>
38
<PAGE> 40
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
A summary of impaired loans, including nonaccrual loans, at December 31,
1998 and 1997 follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
<S> <C> <C>
Nonaccrual loans $ 3,189 $2,977
Impaired loans continuing
to accrue interest 3,831 1,176
------- ------
Total impaired loans $ 7,020 $4,153
======= ======
Allowance for possible losses
on impaired loans $ 1,589 $1,637
======= ======
Impaired loans with no related
allowance for possible
loan losses $ 4,243 $1,374
======= ======
</TABLE>
The average balance of impaired loans during the year was $5,944,000,
$2,997,000, and $6,821,000 at December 31, 1998, 1997, and 1996, 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 $252,000, $232,000, and $133,000 for the years ended December 31, 1998,
1997, and 1996, respectively. The amount recognized as interest income on
nonaccrual loans was $194,000, $113,000, and $27,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
The amount recognized as interest income on other impaired loans continuing
to accrue interest was $343,000, $102,000, and $277,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
There were no restructured loans at December 31, 1998 and 1997.
Aggregate loan transactions involving executive officers and directors of
the Company and its subsidiaries for the year ended December 31, 1998 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 1998.
<TABLE>
<CAPTION>
<S> <C>
Aggregate balance, December 31, 1997 $ 9,337
New loans and advances 15,892
Repayments (15,223)
--------
Aggregate balance, December 31, 1998 $ 10,006
========
</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, 1998.
NOTE 5 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
-------- --------
<S> <C> <C>
Land $ 3,879 $ 3,216
Buildings 15,804 10,013
Furniture and equipment 6,493 5,868
-------- --------
26,176 19,097
Less accumulated depreciation 10,024 8,231
-------- --------
$ 16,152 $ 10,866
======== ========
</TABLE>
Depreciation of bank premises and equipment charged to noninterest expense
amounted to $1,015,000, $1,108,000, and $1,167,000 for 1998, 1997, and 1996,
respectively.
Rents collected and credited to net occupancy and equipment expense
amounted to $221,000, $116,000, and $137,000 for 1998, 1997, and 1996,
respectively.
NOTE 6 -- DEPOSITS
Deposits, by category, at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
<S> <C> <C>
Noninterest-bearing
demand deposits $ 70,436 $ 61,308
Interest-bearing
demand deposits 142,411 139,177
Savings deposits 65,351 56,627
Time deposits:
Under $100,000 196,930 172,830
$100,000 and over 48,161 53,421
--------- ---------
$ 523,289 $ 483,363
========= =========
</TABLE>
39
<PAGE> 41
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
A summary of time deposits as of December 31, 1998 by time remaining until
maturity is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Due in one year or less $ 173,400
Due after one year through two years 42,530
Due after two years through three years 13,622
Due after three years through four years 6,413
Due after four years through five years 9,105
Thereafter 21
----------
$ 245,091
</TABLE>
Interest paid on deposits consists of the following for the years ended
December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest-bearing
demand deposits $ 4,848 $ 4,346 $ 4,125
Savings deposits 1,535 1,459 1,529
Time deposits:
Under $100,000 9,997 9,309 9,462
$100,000 and over 2,721 2,796 2,148
------- ------- -------
$19,101 $17,910 $17,264
======= ======= =======
</TABLE>
NOTE 7 -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
A summary of short-term borrowings at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
------- ------
<S> <C> <C>
Securities sold under agreements to repurchase $ 2,949 $5,333
======= ======
</TABLE>
The average balance of securities sold under agreements to repurchase for
1998, 1997, and 1996 was $3,289,000, $5,053,000, and $893,000, respectively. The
maximum month-end balance of such borrowings for 1998, 1997, and 1996 was
$6,802,000, $9,693,000, and $2,039,000, respectively. The average interest rate
paid on securities sold under agreements to repurchase for 1998, 1997, and 1996
was 4.44%, 4.47%, and 4.37%, respectively.
NOTE 8 -- FEDERAL HOME LOAN BANK BORROWINGS
Federal Home Loan Bank (FHLB) borrowings at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Due December 15, 2000, 5.80% $ 1,000
Due February 26, 2003, 5.65% 330
Due July 30, 2003, 5.98% 1,000
Due May 8, 2008, 5.63% 10,000
Due May 6, 2013, 6.17% 488
Due May 15, 2013, 6.17% 488
Due June 12, 2013, 5.98% 490
Due July 5, 2013, 6.04% 491
--------
$ 14,287
========
</TABLE>
The FHLB borrowings are collateralized by 1-4 family residential real
estate loans with a carrying value of $73,436,000 as of December 31, 1998 and
all stock held in the FHLB of Des Moines.
The Company's banking subsidiaries, which have an investment in the capital
stock of the FHLB, maintain a total line of credit of approximately $44,462,000
available from the FHLB of Des Moines.
NOTE 9 -- FEDERAL INCOME TAXES
The current and deferred portions of Federal income tax expense for 1998,
1997, and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
Current $ 2,625 $2,594 $2,127
Deferred tax expense (7) (286) 50
-------- ------ ------
Federal income tax expense $ 2,618 $2,308 $2,177
======== ====== ======
</TABLE>
A reconciliation of reported Federal income tax expense to income tax
expense computed by applying the federal statutory rate of 34% in 1998, 1997,
and
40
<PAGE> 42
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
1996 to income before Federal income tax expense is as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Computed income tax expense $ 3,206 $2,928 $2,834
Tax-exempt interest income (563) (517) (674)
Other, net (25) (103) 17
------- ------ ------
Federal income tax expense $ 2,618 $2,308 $2,177
======= ====== ======
</TABLE>
The components of deferred tax assets and liabilities at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
<S> <C>
Deferred tax assets:
Allowance for possible loan losses $ 2,089 $ 2,081
Deferred expense 319 288
Other, net - 78
-------- -------
Total deferred tax assets 2,408 2,447
-------- -------
Deferred tax liabilities:
Available for sale securities (130) (67)
Premises and equipment (760) (388)
Discount on debt securities, net (107) (157)
Deferred loan fees (206) (133)
Other, net (18) -
-------- -------
Total deferred tax liabilities (1,221) (745)
-------- -------
Net deferred tax asset $ 1,187 $ 1,702
======== =======
</TABLE>
The Company has not established a valuation allowance for deferred tax
assets as of December 31, 1998 or 1997 due to management's belief that all
criteria for recognition of the assets have been met.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
PENSION
During 1997, the Board of Directors of the Company voted to terminate the
Company's noncontributory 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 elected to provide
benefits with all plan assets. Upon approval by regulatory authorities and
subsequent termination in 1998, all benefits became 100% vested, and all persons
entitled to benefits were eligible to request an immediate lump-sum settlement
of the benefit entitlement. The Company recorded a pension curtailment gain of
approximately $375,000 in 1998 in conjunction with the termination
of the plan.
<TABLE>
<CAPTION>
(in thousands)
1997 1996
----- ------
<S> <C> <C>
Net pension cost included the
following components:
Service cost - benefits
earned during period $ 162 $ 139
Interest cost on projected
benefit obligation 97 87
Return on plan assets (61) (60)
Net amortization and deferral 29 22
----- ------
Net periodic pension cost $ 227 $ 188
===== ======
</TABLE>
Assumptions used were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate in determining
benefit obligations 6.5% 7.0%
Rate of increase in compensa-
tion levels 4.5 4.5
Expected long-term rate on assets 6.5 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. 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 note bears interest at the prime
rate, which was 7.75% at December 31, 1998. 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
41
<PAGE> 43
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
of the ESOP was recorded as intercompany 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 $461,000, $401,000, and $251,000 for the
years ended December 31, 1998, 1997, and 1996, respectively. The ESOP shares as
of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Allocated shares 890,539
Shares released for allocation 37,062
Unreleased shares 222,372
------------
Total ESOP shares 1,149,973
============
Fair value of unreleased shares at
December 31, 1998 $ 2,724,000
============
</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 1998, 1997, and 1996 were $116,000, $107,000, and $99,000,
respectively.
STOCK OPTIONS
The Company maintains two stock option plans: a nonqualified stock option
plan under which options to purchase up to 600,000 shares of common stock have
been granted to certain executive officers of the Company and its subsidiary
banks, and an incentive stock option plan under which options to purchase up to
750,000 shares of common stock could be granted to certain executive officers of
the Company and its subsidiary banks. Options granted under the nonqualified
stock option 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, 75,000 options were
granted at $3.67 per share. Of the options granted, 7,200 have been exercised,
16,800 have been forfeited, and 51,000 are still outstanding. There were no
options granted during 1994 or 1995. In 1996, 225,000 options were granted at
$6.33 per share. Of the options granted, 18,000 have been exercised, 18,000 have
been forfeited, and 189,000 are still outstanding. In 1997, 300,000 options were
granted at $8 per share, all of which remain outstanding as of December 31,
1998. All of the available options under the nonqualified stock option plan were
granted prior to 1998. No options were granted under the incentive stock option
plan during 1998.
The following table summarizes stock options outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------
REMAINING
RANGE OF CONTRACTUAL
EXERCISE LIFE EXERCISE
PRICE OUTSTANDING (IN YEARS) PRICE
---------- ----------- ------------ --------
<S> <C> <C> <C>
$ 3.67 51,000 5.0 $ 3.67
6.33-8.00 489,000 7.9 7.35
---------- -------
$3.67-8.00 540,000 7.6 7.01
========== ======= === ======
</TABLE>
The number of shares exercisable under stock options as of December 31,
1998 were 186,600 with a weighted average exercise price of $6.14.
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 1998, 1997, and 1996
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>
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Net income - as reported $6,810,000 $ 6,302,000 $ 6,158,000
Net income - pro forma 6,678,000 6,170,000 6,115,000
Earnings per common share - diluted, as reported 0.80 0.75 0.75
Earnings per common share - pro forma diluted 0.78 0.74 0.75
========== ============ ============
</TABLE>
Pro forma net income reflects only options granted in 1996 and subsequent
years. Therefore, the full impact of calculating compensation cost for stock
options under SFAS 123 is not reflected in the pro forma net income and earnings
per share amounts presented above because compensation cost is reflected over
the options' vesting period 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 and 1996 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>
42
<PAGE> 44
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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, 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 6,810 $ 6,302 $ 6,158
Average common shares
outstanding 8,297,250 8,207,577 8,138,325
=========== =========== ==========
Basic EPS $ 0.82 $ 0.77 $ 0.76
=========== =========== ==========
Diluted EPS:
Income available to
common shareholders $ 6,810 $ 6,302 $ 6,158
=========== =========== ==========
Average common shares outstanding 8,297,250 8,207,577 8,138,325
Dilutive potential due to
stock options 257,385 186,738 52,317
----------- ----------- ----------
Average number of common shares and dilutive
potential common shares outstanding 8,554,635 8,394,315 8,190,642
=========== =========== ==========
Diluted EPS $ .80 $ .75 $ .75
=========== =========== ==========
</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 $2,473,000 and
$3,292,000 at December 31, 1998 and 1997, 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.
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, 1998, $6,449,000
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.
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 to
risk-weighted assets and of Tier I capital to average assets. Management
believes, as of December 31, 1998, 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
43
<PAGE> 45
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
- ------------------------------------------------------------------------------------------------------------------
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 $65,778 17.41% $30,232 8% $ - -%
SSNB 43,762 17.27 20,266 8 25,333 10
SBJC 6,332 17.88 2,833 8 3,541 10
BSG 9,766 19.67 3,972 8 4,966 10
BSCC 5,354 14.42 2,971 8 3,713 10
TIER I CAPITAL (TO RISK-WEIGHTED ASSETS)
COMPANY $61,036 16.15% $15,116 4% $ - -%
SSNB 40,581 16.02 10,133 4 15,200 6
SBJC 5,888 16.63 1,416 4 2,125 6
BSG 9,143 18.41 1,986 4 2,979 6
BSCC 4,889 13.71 1,485 4 2,228 6
TIER I CAPITAL (TO ADJUSTED AVERAGE ASSETS)
COMPANY $61,036 10.01% $18,293 3% $ - -%
SSNB 40,581 10.02 12,154 3 20,257 5
SBJC 5,888 10.15 1,740 3 2,900 5
BSG 9,143 10.42 2,631 3 4,385 5
BSCC 4,889 8.76 1,674 3 2,790 5
<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 3,6501 0
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>
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, 1998 AND 1997
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Cash $ 1,063 $ 1,198
Investment in subsidiary banks 64,538 56,092
Other assets 1,778 1,736
-------- --------
TOTAL ASSETS $ 67,379 $ 59,026
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
ESOP debt $ 1,384 $ 1,581
Other liabilities 1,031 792
Shareholders' equity 64,964 56,653
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 67,379 $ 59,026
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
REVENUE:
Dividends received from
subsidiary banks $8,300 $5,050 $3,000
Other 343 368 297
------ ------ ------
Total revenue 8,643 5,418 3,297
------ ------ ------
EXPENSES:
Interest expense 121 139 170
Other 2,012 1,952 1,558
------ ------ ------
Total expenses 2,133 2,091 1,728
------ ------ ------
Income before income
tax benefit and undistributed
earnings of subsidiary banks 6,510 3,327 1,569
Income tax benefit 489 496 431
------ ------ ------
Income before
undistributed earnings
of subsidiary banks 6,999 3,823 2,000
Undistributed (loss) earnings of
subsidiary banks (189) 2,479 4,158
------ ------ ------
NET INCOME $6,810 $6,302 $6,158
====== ====== ======
</TABLE>
44
<PAGE> 46
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,810 $ 6,302 $ 6,158
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed losses (earnings) of subsidiary banks 189 (2,479) (4,158)
Other operating activities, net 781 555 688
------- ------- -------
Net cash provided by operating
activities 7,780 4,378 2,688
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of life insurance - - (1,250)
Cash paid to acquire PSB (3,456) - -
Net cash used in investing activities (3,456) - (1,250)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for ESOP debt (197) (1,779)
Proceeds from ESOP debt - 1,581 (299)
Payments to acquire treasury stock (1,860) (1,370) (283)
Cash dividends paid (2,402) (1,909) (1,365)
------- ------- -------
Net cash used in financing activities (4,459) (3,477) (1,947)
------- ------- -------
Net (decrease) increase in cash (135) 901 (509)
Cash, beginning of year 1,198 297 806
------- ------- -------
Cash, end of year $ 1,063 $ 1,198 $ 297
======= ======= =======
Supplemental disclosures of cash flow information - cash paid
during the year for:
Interest on debt $ 121 $ 139 $ 170
Income taxes 2,601 2,498 2,497
======= ======= =======
</TABLE>
NOTE 14 -- CONTINGENCIES
In the normal course of business, the Company had certain litigation
pending at December 31, 1998. 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, 1998 and 1997:
<TABLE>
<CAPTION>
(in thousands)
Contractual Amount
1998 1997
------- --------
<S> <C> <C>
Financial instruments whose
contractual amounts represent:
Commitments to extend credit $53,821 $ 60,971
Standby letters of credit 2,321 2,758
======= ========
</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, 1998 and 1997, $11,107,000 and $8,428,000, respectively, represent
fixed rate loan commitments. Since many of the commitments are expected to
expire 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.
45
<PAGE> 47
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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, 1998 and 1997:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
--------------------- ---------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance sheet assets:
Cash and due from banks $17,924 $ 17,924 $ 18,302 $ 18,302
Federal funds sold 29,900 29,900 17,200 17,200
Investments in
debt securities:
Available for sale 97,895 97,895 73,460 73,460
Held to maturity 84,036 85,841 99,679 100,838
Loans, net 350,796 360,399 320,317 325,819
======== ======== ======== ========
Balance sheet liabilities:
Deposits $523,289 $523,289 $483,363 $483,363
Securities sold
under agreements to repurchase 2,949 2,949 5,333 5,333
FHLB borrowings 14,287 12,678 - -
======== ======== ======== ========
</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 and 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 deposits is the amount payable on demand, as such
carrying value approximates fair value on such items.
FHLB BORROWINGS
The fair value of FHLB borrowings is estimated by discounting the future
cash flows using currently quoted interest rates for FHLB borrowings for the
same maturity date.
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 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 the estimates of fair value.
46
<PAGE> 48
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
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 -- SEGMENT INFORMATION
The responsibility for management of the subsidiary banks remains with the
officers and directors of the respective banks. The financial performance of the
Company is measured internally by subsidiary bank results and key performance
measures. The following table shows the financial information of the Company's
subsidiary banks for 1998, 1997, and 1996. The "Other" column includes the
Parent Company and all intercompany elimination entries.
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------------
CONSOLI-
SSNB SBJC BSG BSCC OTHER DATED
--------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net interest income $ 14,422 $ 2,359 $ 3,546 $ 2,164 $ (121) $ 22,370
Provision for possible
loan losses 2 60 - - - 62
Noninterest income 2,434 218 340 266 73 3,331
Noninterest expense 9,967 1,353 1,749 1,400 1,742 16,211
Income taxes 1,767 375 619 346 (489) 2,618
Net income 5,120 789 1,518 684 (1,301) 6,810
AVERAGE BALANCES
Loans $ 216,473 $ 40,651 $ 53,086 $ 37,076 $ (1,384) $ 345,902
Assets 386,987 58,838 89,524 55,477 (702) 590,124
Deposits 329,975 52,481 78,039 50,412 (800) 510,107
FINANCIAL RATIOS
Return on assets 1.32% 1.34% 1.70% 1.23% - 1.15%
Return on equity 13.41 13.20 15.58 14.71 - 11.12
Net interest margin 4.57 4.39 4.35 4.22 - 4.15
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------------
CONSOLI-
SSNB SBJC BSG BSCC OTHER DATED
--------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net interest income $ 13,559 $ 2,233 $ 3,529 $ 1,895 $ (139) $ 21,077
Provision for possible
loan losses - 60 - - - 60
Noninterest income 1,993 227 314 225 73 2,832
Noninterest expense 9,187 1,320 1,754 1,320 1,658 15,239
Income taxes 1,591 350 597 266 (496) 2,308
Net income 4,774 730 1,492 534 (1,228) 6,302
AVERAGE BALANCES
Loans $ 187,014 $ 39,074 $ 52,346 $ 32,832 $ - $ 311,266
Assets 344,745 55,415 86,877 47,251 1,521 535,809
Deposits 301,964 49,281 76,885 42,436 (1,185) 469,381
FINANCIAL RATIOS
Return on assets 1.38% 1.32% 1.72% 1.13% - 1.18%
Return on equity 13.58 12.69 15.74 12.25 - 11.44
Net interest margin 4.37 4.35 4.45 4.23 - 4.34
</TABLE>
47
<PAGE> 49
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
<TABLE>
<CAPTION>
(in thousands)
Year ended December 31, 1996
----------------------------------------------------------------------------------------------
CONSOLI-
SSNB SBJC BSG BSCC OTHER DATED
--------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net interest income $ 13,375 $ 2,026 $ 3,358 $ 1,753 $ (170) $ 20,342
Provision for possible
loan losses - 60 - - - 60
Noninterest income 1,872 257 305 224 12 2,670
Noninterest expense 9,114 1,268 1,710 1,252 1,273 14,617
Income taxes 1,538 301 532 237 (431) 2,177
Net income 4,595 654 1,421 488 (1,000) 6,158
AVERAGE BALANCES
Loans $ 177,597 $ 36,477 $ 50,595 $ 31,014 $ - $ 295,683
Assets 333,019 53,020 85,190 42,724 1,037 514,990
Deposits 295,000 47,292 75,742 38,277 (395) 455,916
FINANCIAL RATIOS
Return on assets 1.38% 1.23% 1.67% 1.14% - 1.20%
Return on equity 13.99 12.11 16.11 12.16 - 12.27
Net interest margin 4.50 4.18 4.36 4.44 - 4.42
</TABLE>
48
<PAGE> 50
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:
BOARD OF DIRECTORS
JOSEPH W. BEETZ
President
Joseph H. Beetz Plumbing Company, Inc.
Director
South Side National Bank in St. Louis
HOWARD F. ETLING
Publisher Emeritus
Journal Newspaper
Former President
South County Publications, Inc.
Chairman of the Board
Southside Bancshares Corp.
Chairman of the Board
South Side National Bank in St. Louis
DOUGLAS P. HELEIN
Insurance Broker
Welsch, Flatness & Lutz, Inc.
Director
South Side National Bank in St. Louis
EARLE J. KENNEDY, JR.
Former President
Westway Services, Inc.
Former President
Continental Boiler Works, Inc.
Director
South Side National Bank in St. Louis
NORVILLE K. MCCLAIN
President
Essex Contracting, Inc.
Director
South Side National Bank in St. Louis
DANIEL J. QUEEN
President
Highland Diversified
Director
South Side National Bank in St. Louis
Director
State Bank of Jefferson County
RICHARD G. SCHROEDER, SR.
President
St. Louis Fabrication Services, Inc.
Director
South Side National Bank in St. Louis
THOMAS M. TESCHNER
President and Chief Executive Officer
Southside Bancshares Corp.
President and Chief Executive Officer
South Side National Bank in St. Louis
Director
South Side National Bank in St. Louis
Director
Bank of Ste. Genevieve
Director
State Bank of Jefferson County
Director
The Bank of St. Charles County
OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
THOMAS M. TESCHNER DAVID J. ABELN JOANNE M. SCHNEIDER
President and Chief Executive Vice President/Investments Secretary to the Board
Officer CAROLE A. MATT LAURA L. THOMAS
JOSEPH W. POPE Vice President/Compliance Assistant Secretary to the Board
Senior Vice President and
Chief Financial Officer
</TABLE>
49
<PAGE> 51
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; 11330 Gravois, St. Louis, Missouri 63126; and 4111 Telegraph Road, St.
Louis, Missouri 63129. 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 25 drive-in windows and nine 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, 1998 were $408,058,000. Total
deposits at December 31, 1998 were $345,452,000. Total loans at December 31,
1998 were $232,453,000.
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
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
ADVISORY BOARD OF DIRECTORS
TIM DRURY STEVEN C. ROBERTS FLOYD E. WRIGHT
THOMAS H. ETLING FRANCIS G. SLACK THOMAS M. TESCHNER
JOSEPH S. WEINMANN
</TABLE>
OFFICERS
THOMAS M. TESCHNER
President and Chief Executive Officer
MITCHELL P. BADEN
Executive Vice President and Senior Loan Officer
LAURIE A. PENNYCOOK
Senior Vice President, Operations Officer, Cashier & Security Officer
JOSEPH W. POPE
Senior Vice President
STEVEN L. RAY
Senior Vice President and Senior Trust Officer
GUS ENGELLAND
Senior Vice President
KENNETH E. MARSCHUETZ
Senior Vice President
WILLIAM E. MUHLKE
Senior Vice President and Comptroller
CAROLE A. MATT
Vice President and Compliance Officer, CRA Officer & Bank Secrecy Officer
DAVID J. ABELN
Vice President/Investments
RAYMOND H. BAYER
Vice President/Installment Loan
MARK D. CHAPMAN
Vice President/Human Resources
JOHN M. DOHR
Vice President/Loan
MELVIN M. EMBRICH
Vice President/Loan
LISA M. FRICK
Vice President /Real Estate Loans
CONNIE E. HORNAK
Vice President/Account Services
ROBERT D. JOSEPH
Vice President/Loan
COLETTE A. LETENDRE
Vice President/Loan
JUDI M. SCHULZ
Vice President/Retail Banking
DONALD A. SEILER
Vice President/Loan
JOHN R. SHIVERS
Vice President/West Florissant Branch
DEBBIE BADER
Assistant Vice President
JEFFERY M. BERRY
Assistant Vice President/Trust
WILLIAM J. BUOL
Assistant Vice President/Network
Administration
SHERRY BURGER
Assistant Vice President/ Sappington Branch
GAIL R. DICKSON
Assistant Vice President/Personal Banker
D. SUE DOERING
Assistant Vice President/Trust
BETTY J. DEFORD
Assistant Vice President/Real Estate Loans
DONNA M. FELDMANN
Assistant Vice President/Teller Operations
PAMELA A. HALE
Assistant Vice President/Kennerly Branch
WENDY HAMILTON
Assistant Vice President/Marketing
DOLORES G. HENSEL
Assistant Vice President/Personal Banker
BRENDA L. HUDDLESTON
Assistant Vice President/ Accounting
MILISSA MAZANEC
Assistant Vice President/ Lansdowne Branch
SALLY MEYER
Assistant Vice President/Teller Operations
D. MICHAEL MINOR
Assistant Vice President/ Morganford Branch
GLENDA L. POPPLETON
Assistant Vice President/Loan Administration
HEATHER SCHAUB
Assistant Vice President/Branch Manager
JAMES R. SHAVER
Assistant Vice President/Real Estate Loans
ANNA SMITH-CRAFT
Assistant Vice President/Installment Loans
PAUL A. STEUBE
Assistant Vice President/Trust
SUSAN SUN
Assistant Vice President/Community Banking
STACEY N. REINHARDT
Assistant Vice President/Account Services
CATHY M. THOMPSON
Assistant Vice President/Trust
JACQUELINE A. YOCHIM
Assistant Vice President/Safe Deposit
MARK ZIELINSKI
Assistant Vice President/Trust
JOANNE M. SCHNEIDER
Secretary to the Board
LAURA L. THOMAS
Assistant Secretary to the Board
50
<PAGE> 52
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 drive-in windows and a 24-hour automated
teller machine at both locations. 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, 1998 were $59,057,000. Total
deposits at December 31, 1998 were $52,889,000. Total loans at December 31, 1998
were $39,393,000.
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
<TABLE>
<CAPTION>
<S> <C> <C>
RICHARD B. FRANCIS ANN GAMBER DIANE HUMPHREY
President and Chief Executive Compliance Officer Assistant Cashier
Officer KEVIN L. BOREN ELAINE WATTERS
MARGARET A. ARMBRUSTER Vice President Assistant Cashier
Vice President PHYLLIS POOLE PAULINE WILLIAMSON
BARBARA A. DONTRICH Assistant Vice President and Assistant Cashier
Sr. Vice President, Cashier, 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, 1998 were $87,267,000. Total
deposits at December 31, 1998 were $75,794,000. Total loans at December 31, 1998
were $50,214,000.
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
<TABLE>
<CAPTION>
<S> <C> <C>
PATRICK J. UDING JERRY V. BERGTHOLDT GARY D. FISCHER
President & Chief Executive Assistant Vice President Vice President
Officer MONICA J. KREITLER MARY ANN BAUMAN
WILLIAM E. MILES Assistant Vice President and Assistant Cashier
Senior Vice President, CRA Compliance Officer MARY ELLEN CABRAL
Officer, and Security Officer Executive Secretary
STEPHEN J. ABTS
Vice President and Cashier
</TABLE>
51
<PAGE> 53
THE BANK OF ST. CHARLES COUNTY
The main office of The Bank of St. Charles County is located at 6004
Highway 94 South, Weldon Spring, 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, 1998 were $56,940,000. Total
deposits at December 31, 1998 were $51,682,000. Total loans at December 31, 1998
were $36,312,000.
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
<TABLE>
<CAPTION>
<S> <C> <C>
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>
52
<PAGE> 54
This page was intentionally left blank.
<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 March 5, 1999, relating to the consolidated balance sheets of
Southside Bancshares Corp. and subsidiaries as of December 31, 1998, and 1997,
and the related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998, which report appears in the December 31, 1998,
annual report on Form 10-K of Southside Bancshares Corp.
/s/ KPMG LLP
St. Louis, Missouri
March 25, 1999
<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> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,924
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 29,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,895
<INVESTMENTS-CARRYING> 84,036
<INVESTMENTS-MARKET> 85,841
<LOANS> 356,988
<ALLOWANCE> 6,192
<TOTAL-ASSETS> 610,293
<DEPOSITS> 523,289
<SHORT-TERM> 2,949
<LIABILITIES-OTHER> 4,804
<LONG-TERM> 14,287
0
0
<COMMON> 8,985
<OTHER-SE> 55,979
<TOTAL-LIABILITIES-AND-EQUITY> 610,293
<INTEREST-LOAN> 30,259
<INTEREST-INVEST> 10,707
<INTEREST-OTHER> 1,261
<INTEREST-TOTAL> 42,227
<INTEREST-DEPOSIT> 19,101
<INTEREST-EXPENSE> 19,857
<INTEREST-INCOME-NET> 22,370
<LOAN-LOSSES> 62
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,211
<INCOME-PRETAX> 9,428
<INCOME-PRE-EXTRAORDINARY> 9,428
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,810
<EPS-PRIMARY> .82
<EPS-DILUTED> .80
<YIELD-ACTUAL> 4.15
<LOANS-NON> 3,189
<LOANS-PAST> 1,361
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,243
<ALLOWANCE-OPEN> 6,120
<CHARGE-OFFS> 536
<RECOVERIES> 289
<ALLOWANCE-CLOSE> 6,192
<ALLOWANCE-DOMESTIC> 6,192
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
