<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
--------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
to
--------------------------- ---------------------------
Commission file number 0-12247
----------------------
SOUTHSIDE BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1848732
- -------------------------------------------------------------- ----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 S. Beckham, Tyler, Texas 75701
- -------------------------------------------------------------- -------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(Registrant's telephone number, including area code) 903-531-7111
----------------
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 .
--- ---
The number of shares outstanding of each of the issuer's classes of
capital stock, as of the latest practicable date, was
Shares of Common Stock, par value $2.50, Outstanding were 2,973,234 at March
31, 1995.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ --------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,892 $ 25,381
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,525 11,100
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,253 25,695
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,481 57,025
------------ --------------
Total Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 86,734 82,720
Mortgage-backed and related securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,078 27,654
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,372 60,426
------------ --------------
Total Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . 81,450 88,080
Marketable equity securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,029 2,005
Loans:
Student loans held for resale (at the lower of cost or market) . . . . . . . . . . 117 117
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,104 201,680
Less: Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (3,174) (3,137)
------------ --------------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,047 198,660
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,752 9,875
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 398
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,545 2,581
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,403 1,909
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,109 3,512
------------ --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 423,884 $ 426,221
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,596 $ 88,008
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,840 297,094
------------ --------------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377,436 385,102
Short-term obligations:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650
Long-term obligations:
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,796 7,997
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,954 5,598
------------ --------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,836 398,697
------------ --------------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
2,973,234 shares issued and outstanding) . . . . . . . . . . . . . . . . . . . . 7,433 7,433
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,529 14,529
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,448 7,480
Treasury stock (44,426 and 23,082 shares at cost) . . . . . . . . . . . . . . . . (431) (219)
Net unrealized (losses) on securities available for sale . . . . . . . . . . . . . (931) (1,699)
------------ --------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . 29,048 27,524
------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . $ 423,884 $ 426,221
============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 3
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1995 1994
------------ ----------
<S> <C> <C>
Interest income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,438 $ 3,794
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,112 733
Mortgage-backed and related securities . . . . . . . . . . . . . . . . . . . 1,396 1,369
Other interest earning assets . . . . . . . . . . . . . . . . . . . . . . . 152 74
------------ -----------
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . 7,098 5,970
Interest expense
Time and savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . 2,858 2,230
Short-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 149
------------ -----------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 2,976 2,379
------------ -----------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,122 3,591
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
------------ -----------
Net interest income after provision for loan losses . . . . . . . . . . . . . . 4,122 3,441
------------ -----------
Noninterest income
Deposit services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676 682
Gains on securities available for sale . . . . . . . . . . . . . . . . . . . 10 55
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 239
------------ -----------
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . 892 976
------------ -----------
Noninterest expenses
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . 2,135 2,098
Net occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 319
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 68
Advertising, travel & entertainment . . . . . . . . . . . . . . . . . . . . 201 198
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 94
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 193
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 69
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479 502
------------ -----------
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . 3,684 3,541
------------ -----------
Income before federal tax expense . . . . . . . . . . . . . . . . . . . . . . . 1,330 876
Provision for tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 196
------------ -----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 968 $ 680
============ ===========
Earnings Per Share
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .33 $ .23
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1995 1994
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 968 $ 680
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 379 572
Accretion of discount and loan fees . . . . . . . . . . . . . . . . . . . . . (223) (165)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Provision for losses on other real estate owned . . . . . . . . . . . . . . . 19
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . . . . 36 504
(Increase) in other receivables and prepaids . . . . . . . . . . . . . . . . (571) (663)
Decrease in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . 110
Increase (decrease) in interest payable . . . . . . . . . . . . . . . . . . . (18) 11
(Gain) on securities available for sale . . . . . . . . . . . . . . . . . . . (10) (55)
(Gain) on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
Increase in other payables . . . . . . . . . . . . . . . . . . . . . . . . . 3,374 1,616
Net decrease in student loans held for resale . . . . . . . . . . . . . . . . 25
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 4,035 2,694
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale . . . . . . . 6,060 18,593
Proceeds from sales of mortgage-backed securities available for sale . . . . . 7,153 12,843
Proceeds from maturities of investment securities available for sale . . . . . 3,052 195
Proceeds from maturities of mortgage-backed securities available for sale . . 1,503 10,082
Proceeds from maturities of investment securities held to maturity . . . . . . 5,675 1,102
Proceeds from maturities of mortgage-backed securities held to maturity . . . 1,109 865
Purchases of investment securities available for sale . . . . . . . . . . . . (18,198) (2,137)
Purchases of mortgage-backed securities available for sale . . . . . . . . . . (2,464) (8,404)
Purchases of marketable equity securities available for sale . . . . . . . . . (24) (15)
Purchases of investment securities held to maturity . . . . . . . . . . . . . (6,422)
Purchases of mortgage-backed securities held to maturity . . . . . . . . . . . (786)
Net (increase) in federal funds sold . . . . . . . . . . . . . . . . . . . . . (6,425) (15,850)
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . . . 310 (11,785)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . (165) (94)
Proceeds from sales of premises and equipment . . . . . . . . . . . . . . . . 42
Proceeds from sales of repossessed assets . . . . . . . . . . . . . . . . . . 277 320
Proceeds from sales of other real estate owned . . . . . . . . . . . . . . . . 59
------------ ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (2,095) (1,434)
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings accounts . . . . . . . . . . . . $ (9,365) $ 7,782
Net increase in certificates of deposit . . . . . . . . . . . . . . . . . . . 1,699 3,228
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . 650 (6,750)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (212)
Net (decrease) in notes payable . . . . . . . . . . . . . . . . . . . . . . . (201) (222)
Net (decrease) in securities sold under agreement to repurchase . . . . . . . (3,923)
------------ ------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . (7,429) 115
------------ ------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . (5,489) 1,375
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 25,381 19,792
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 19,892 $ 21,167
============ ============
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,995 $ 2,368
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75 $ 53
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and repossessed assets through foreclosure . . . . . . . . $ 232 $ 346
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized Total
Common Paid in Retained Treasury Gains Shareholders'
Stock Capital Earnings Stock (Losses) Equity
---------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 . . . . . . $ 7,029 $ 13,358 $ 6,066 $ $ 788 $ 27,241
Net Income . . . . . . . . . . . . . . . 680 680
Net unrealized (losses) on securities
available for sale (net of tax) . . . . (949) (949)
---------- --------- --------- ---------- ---------- ----------
Balance at March 31, 1994 . . . . . . . . $ 7,029 $ 13,358 $ 6,746 $ $ (161) $ 26,972
========== ========= ========= ========== ========== ==========
Balance at December 31, 1994 . . . . . . $ 7,433 $ 14,529 $ 7,480 $ (219) $ (1,699) $ 27,524
Net Income . . . . . . . . . . . . . . . 968 968
Purchase of 21,344 shares of
Treasury stock . . . . . . . . . . . . . (212) (212)
Net unrealized gains on securities
available for sale (net of tax) . . . . 768 768
---------- --------- --------- ---------- ---------- ----------
Balance at March 31, 1995 . . . . . . . . $ 7,433 $ 14,529 $ 8,448 $ (431) $ (931) $ 29,048
========== ========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation.
The consolidated balance sheet as of March 31, 1995, and the related
consolidated statements of income, shareholders' equity and cash flow for the
three month periods ended March 31, 1995 and 1994 are unaudited; in the opinion
of management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year. These financial statements should be read in
conjunction with the financial statements and notes thereto in the Company's
latest report on Form 10-K.
2. Earnings Per Share.
All per share data has been adjusted to give retroactive recognition to the
effect of stock splits and stock dividends. As of March 31, 1995 and 1994, the
number of shares used to calculate earnings per share was 2,943,620 and
2,952,678, respectively.
3. Loans.
The Company adopted FAS114, "Accounting by Creditors for Impairment of a Loan,"
on January 1, 1995. Under the new standard, a loan is considered impaired,
based on current information and events, if it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement. The measurement
of impaired loans is generally based on the present value of expected future
cash flows discounted at the historical effective interest rate, except that
all collateral-dependent loans are measured for impairment based on the fair
value of the collateral. The adoption of FAS114 resulted in no additional
provision for credit losses.
Loans, including impaired loans, are placed on nonaccrual when principal or
interest is past due 90 days or more unless, in the determination of
management, the principal and interest on the loan are well secured and in the
process of collection. In addition, a loan is placed on nonaccrual when, in
the opinion of management, the future collectibility of interest and principal
is in serious doubt. When classified as nonaccrual, accrued interest
receivable on the loan is reversed and the future accrual of interest is
suspended. Payments of contractual interest is recognized as income only to
the extent that full recovery of the principal balance of the loan is
reasonably certain.
At March 31, 1995, the recorded investment in loans (primarily nonaccrual
loans) for which impairment has been recognized in accordance with FAS114
totaled $1,495,000 with a corresponding valuation allowance of $378,000. For
the quarter ended March 31, 1995, the average recorded investment in impaired
loans was approximately $1,237,000. During the three months ended March 31,
1995, the amount of interest income reversed on impaired loans placed on
nonaccrual and the amount of interest income subsequently recognized on the
cash basis was not material.
In prior years, the Company classified certain loans meeting the in-substance
foreclosure criteria as Other Real Estate Owned. Upon the adoption of FAS114,
the Company reclassified in-substance foreclosed assets that were not in its
possession to loans. Prior periods have been reclassified for comparative
purposes.
6
<PAGE> 8
The following is a summary of the Reserve for Loan Losses for the three months
ended March 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
March 31,
--------------------------
1995 1994
------------ ----------
<S> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,137 $ 2,846
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100) (120)
Recoveries of loans charged off . . . . . . . . . . . . . . . . . . . . . . 137 107
------------ ------------
Net loan (losses) recoveries . . . . . . . . . . . . . . . . . . . . . . 37 (13)
------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,174 $ 2,983
============ ============
</TABLE>
7
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter ended March 31, 1995 compared to
March 31, 1994.
The following is a discussion of the consolidated financial condition, changes
in financial condition, and results of operations of Southside Bancshares, Inc.
(the "Company"), and should be read and reviewed in conjunction with the
financial statements and the notes thereto, in this presentation and in the
Company's latest report on Form 10-K.
The Company reported an increase in net income for the quarter ended March 31,
1995 compared to the comparable period in 1994. Net income for the quarter
ended March 31, 1995 was $968,000 as compared to $680,000 for the same period
in 1994.
Net Interest Income
Net interest income for the quarter ended March 31, 1995 was $4,122,000, an
increase of $531,000 or 14.8% when compared to the same period in 1994. The
net interest spread increased from 3.4% at March 31, 1994 to 3.7% at March 31,
1995.
During the three months ended March 31, 1995 Average Loans, funded primarily by
deposit growth, increased $10,083,000 or 5.3%, compared to the same period in
1994. The average yield on loans increased from 8.1% at March 31, 1994 to 9.0%
at March 31, 1995 reflecting the higher overall interest rates.
Average Securities increased $75,000 for the three months ended March 31, 1995
when compared to 1994. The increase in Average Investment Securities of
$19,022,000 was offset by the $18,947,000 decrease in Average Mortgage-backed
Securities. The overall yield on Average Securities increased to 6.1% during
the three months ended March 31, 1995, up from 5.1% during the same period in
1994 as a result of the higher overall interest rates. The net result during
the first three months of 1995 was an increase in interest income from
Securities of $406,000 or 19.3% compared to the same period in 1994 as a direct
result of higher overall yields.
Interest income from federal funds and other interest earning assets increased
$78,000 or 105.4% for the three months ended March 31, 1995 when compared to
1994. During this time the average balance increased $2,155,000 or 24.8% and
the yield increased from 3.5% during the three months ended March 31, 1994 to
5.7% for the same period in 1995. The change resulted due to an increase in
the yield and average balance of Fed Funds Sold.
Total interest expense increased $597,000 or 25.1% to $2,976,000 during the
three months ended March 31, 1995 as compared to $2,379,000 during the same
period in 1994. The increase was attributable to higher interest rates along
with an increase in Average Interest Bearing Liabilities of $8,400,000 or 2.8%
during the three months ended March 31, 1995 when compared to the same period
in 1994. The average rate on interest bearing liabilities increased to 3.9%
for the three months ended March 31, 1995 from 3.2% for the same period in
1994.
8
<PAGE> 10
The analysis below shows average interest earning assets and interest bearing
liabilities together with the average yield on the interest earning assets and
the average cost of the interest bearing liabilities.
<TABLE>
<CAPTION>
SUMMARY OF INTEREST EARNING ASSETS AND INTEREST-BEARING LIABILITIES
AVERAGE YIELD OR AVERAGE YIELD OR
VOLUME INTEREST RATE PAID VOLUME INTEREST RATE PAID
---------- ----------- --------- ---------- ----------- ---------
(Dollars in thousands)
Three Months Ended March 31, 1995 Three Months Ended March 31, 1994
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 200,564 $ 4,438 9.0% $ 190,481 $ 3,794 8.1%
Investment Securities 78,556 1,112 5.7% 59,534 733 5.0%
Mortgage-backed Securities 88,098 1,396 6.4% 107,045 1,369 5.2%
Other Interest Earning
Assets 10,848 152 5.7% 8,693 74 3.5%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS $ 378,066 $ 7,098 7.6% $ 365,753 $ 5,970 6.6%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 296,328 $ 2,858 3.9% $ 283,146 $ 2,230 3.2%
Other Interest Bearing
Liabilities 9,917 118 4.8% 14,699 149 4.1%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES $ 306,245 $ 2,976 3.9% $ 297,845 $ 2,379 3.2%
========== ========= ----- ========== ========== -----
NET INTEREST SPREAD 3.7% 3.4%
===== =====
</TABLE>
Noninterest Income
Noninterest income for the three months ended March 31, 1995 was $892,000
representing an $84,000 or 8.6% decrease from the $976,000 reported for the
same period in 1994. $45,000 of the decrease is due to a decrease in gains on
sales of securities available for sale. Other noninterest income decreased
$33,000 from the same period in 1994 with small changes occurring in various
categories.
The market value of the entire securities portfolio at March 31, 1995 was
$169,150,000 with a net unrealized loss on that date of $909,000. The net
unrealized loss is comprised of $899,000 in unrealized gains and $1,808,000 in
unrealized losses.
9
<PAGE> 11
Noninterest Expense
Noninterest expense was $3,684,000 for the quarter ended March 31, 1995,
compared to $3,541,000 for the same period of 1994, representing an increase of
$143,000 or 4.0%.
Salaries and employee benefits increased $37,000 during the three months ended
March 31, 1995 when compared to the same period in 1994. Increased direct
salary expense accounted for all of this change while retirement and health
insurance expense experienced offsetting changes. Health insurance expense
decreased $13,000 due to lower claims offsetting the increase in retirement
expense of $13,000.
Net occupancy expense increased $89,000 or 27.9% as a result of the opening of
the new motor bank facility and the operations annex during the fourth quarter
of 1994. In addition, FDIC insurance increased $17,000 or 8.8% as a result of
higher deposits during the comparable assessment periods.
Provision for Income Taxes
The provision for tax expense ratio for the quarter ended March 31, 1995 was
27.2% compared to 22.4% for the quarter ended March 31, 1994. The increased
income tax expense is a result of higher pre-tax income and lower tax free
income for the quarter ended March 31, 1995 compared to March 31, 1994.
Capital Resources
Total shareholders' equity for the Company at March 31, 1995, of $29,048,000
was up 5.5% or $1,524,000 from December 31, 1994, and represented 6.9% of total
assets versus 6.5% at December 31, 1994. Net income of $968,000 along with a
decrease in the Net unrealized losses on securities available for sale of
$768,000, more than offset the decrease from the purchase of 21,344 shares of
Treasury Stock for $212,000. The Company purchased the treasury stock pursuant
to a common stock repurchase program instituted in late 1994. Under the
repurchase program, the Board of Directors establishes, on a quarterly basis,
total dollar limitations and price per share for stock to be repurchased. The
Board approved a purchase limitation of $250,000 for the first quarter of 1995.
The Board will review this program in conjunction with the capital needs of the
Company and Southside Bank and may, at its discretion, modify or discontinue
the program.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. As of March 31, 1995, the minimum ratio of capital to
risk-adjusted assets (including certain off-balance sheet items, such as
standby letters of credit) was 8%. At least half of the total capital must be
comprised of common equity, retained earnings and a limited amount of perpetual
preferred stock, after subtracting goodwill and certain other adjustments
("Tier 1 capital"). The remainder may consist of perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and a limited amount of loan loss reserves ("Tier 2 capital").
The maximum amount of supplementary capital elements that qualifies as Tier 2
capital is limited to 100% of Tier 1 capital net of goodwill. The Federal
Reserve Board also has adopted a minimum leverage ratio (Tier 1 capital to
average total assets) of 3% for bank holding companies that meet certain
specified criteria, including having the highest regulatory rating. The rule
indicates that the minimum leverage ratio should be at least 1.0% to 2.0%
higher for holding companies that do not have the highest rating or that are
undertaking major expansion programs. The Company's state chartered banking
subsidiary is subject to similar capital and risk-based capital requirements
adopted by the FDIC and Texas Banking Department, respectively. The leverage
capital requirement adopted by the Texas Banking Department is 6%. At March
31, 1995, the Company and Southside Bank exceeded all regulatory minimum
capital ratios.
10
<PAGE> 12
It is management's intention to maintain the Company's capital at a level
acceptable to all regulatory authorities and future dividend payments will be
reviewed accordingly. Regulatory authorities require that any dividend
payments made by either the Company or Southside Bank not exceed earnings for
that year.
Liquidity and Interest Rate Sensitivity
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest sensitive
earning assets and interest bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing funds to meet their
credit needs. Interest rate sensitivity management seeks to avoid fluctuating
net interest margins and to enhance consistent growth of new interest income
through periods of changing interest rates.
Cash, Interest Earning Deposits, Federal Funds Sold and short-term investments
with maturities or repricing characteristics of one year or less are the
principal sources of asset liquidity. At March 31, 1995, these investments
were 23.2% of Total Assets. Historically, the overall liquidity of the Company
has been enhanced by a significant aggregate amount of core deposits.
Liquidity has been further enhanced by the lack of dependence of public fund
deposits which have been replaced by more stable nonpublic fund deposits.
Composition of Loans
The Company's main objective is to seek attractive lending opportunities in
Smith County, Texas and adjoining counties. Total Average Loans increased
$10,083,000 or 5.3% when comparing the three months ended March 31, 1995 to
March 31, 1994. The majority of the increase is in Real Estate Loans and Loans
to Individuals which have increased due to a strong real estate market and
additional penetration achieved with the new branch locations in the Company's
market area.
Loan Loss Experience and Reserve for Loan Losses
For the three months ended March 31, 1995, loan charge-offs and recoveries were
$100,000 and $137,000, respectively, resulting in net recoveries of $37,000.
For the same period in 1994, loan charge-offs exceeded recoveries by $13,000.
The loan loss reserve is based on the most current review of the loan portfolio
at that time. An internal loan review officer of the Company is responsible
for an ongoing review of Southside Bank's entire loan portfolio with specific
goals set for the volume of loans to be reviewed on an annual basis.
A list of loans which are graded as having more than the normal degree of risk
associated with them are maintained by the internal loan review officer. This
list is updated on a periodic basis but no less than quarterly by the servicing
officer in order to properly allocate necessary reserves and keep management
informed on the status of attempts to correct the deficiencies noted in the
credit.
While management is aware of certain risk factors within segments of the loan
portfolio, reserve allocations have been made on an individual loan basis. An
additional reserve is maintained on the remainder of the portfolio of at risk
loans that is based on tracking of the Company's loan losses on loans that have
not been previously identified as problems.
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (FAS114). This standard requires that impaired loans within the
scope of this statement be measured based on the present value of expected
future cash flows. In October 1994, the Financial Accounting Standards Board
issued
11
<PAGE> 13
Statement of Financial Accounting Standards No. 118 which amends FAS114 to
allow creditors to use existing methods for recognizing interest income on an
impaired loan. The impact of these statements did not result in any additional
provisions for loan losses or changes in earnings.
Nonperforming Assets
The categories of nonperforming assets consist of delinquent loans over 90 days
past due, nonaccrual and restructured loans, other real estate owned and
repossessed assets. Delinquent loans over 90 days past due represent loans for
which the payment of principal or interest has not been received in a timely
manner. The full collection of both the principal and interest is still
expected but is being withheld due to negotiation or other items expected to be
resolved in the near future. Generally, a loan is categorized as nonaccrual
when principal or interest is past due 90 days or more, unless, in the
determination of management, the principal and interest on the loan are well
secured and in the process of collection. In addition, a loan is placed on
nonaccrual when, in the opinion of management, the future collectibility of
interest and principal is in serious doubt. When a loan is categorized as
nonaccrual, the accrual of interest is discontinued and any remaining accrued
interest is reversed in that period; thereafter, interest income is recorded
only when actually received. Restructured loans represent loans which have
been renegotiated to provide a reduction or deferral of interest or principal
because of deterioration in the financial position of the borrowers.
Categorization of a loan as nonperforming is not in itself a reliable indicator
of potential loan loss. Other factors, such as the value of collateral
securing the loan and the financial condition of the borrower must be
considered in judgements as to potential loan loss.
Other real estate owned (OREO) represents real estate taken in full or partial
satisfaction of debts previously contracted. Previously included in the
appropriate categories of nonperforming assets were loans meeting the
in-substance foreclosed criteria. As a result of the adoption of FAS114, the
Company reclassified in-substance foreclosed assets in these categories to
loans. The OREO consists of commercial buildings, residential real estate and
raw land. The Company is actively marketing all properties and none are being
held for investment purposes.
Total nonperforming assets at March 31, 1995 were $3,906,000, down $866,000 or
18.1% from $4,772,000 at March 31, 1994, as a result of OREO sales. The
balance of OREO at March 31, 1995 decreased $1,033,000 or 72.2% when compared
to March 31, 1994.
Expansion
During 1995, the new South Broadway branch was completed and opened on April
24, 1995. The Company is acquiring land to expand the motor bank facility at
its North Tyler branch. In addition, plans are under way to remodel and expand
the facilities at the main branch on South Beckham.
12
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of shareholders was held on April 26, 1995.
(b) The election of two directors (term expiring at the 1998
Annual Meeting) were as follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
-------------- -------------- --------------
<S> <C> <C> <C>
B. G. Hartley 1,898,137 29,614 55,716
Fred E. Bosworth 1,896,914 30,837 55,716
</TABLE>
Directors continuing until the 1996 Annual Meeting are as
follows:
Rollins Caldwell
William Sheehy
Murph Wilson
Directors continuing until the 1997 Annual Meeting are as
follows:
Herbert C. Buie
Robbie N. Edmonson
W. D. (Joe) Norton
(c) The matters voted upon and the results of the voting were as
follows:
The shareholders voted 1,975,994 shares in the affirmative,
136 shares in the negative, and 7,337 abstentions to ratify
the selection of Coopers and Lybrand as Southside Bancshares,
Inc.'s Independent Auditors for the year ending December 31,
1995.
Item 5. Other Information
Not Applicable
13
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
-------
27 - Financial Data Schedule for the quarter ended
March 31, 1995.
(b) Reports on Form 8-K - Not Applicable
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SOUTHSIDE BANCSHARES, INC.
BY: /s/ B.G. HARTLEY
------------------------------------------
B.G. Hartley, Chairman of the
Board and Chief Executive
Officer (Principal Executive
Officer)
DATE: 05-09-95
------------------------------
BY: /s/ LEE R. GIBSON
------------------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 05-09-95
------------------------------
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule for the quarter ended
March 31, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,892
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,525
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,360
<INVESTMENTS-CARRYING> 110,853
<INVESTMENTS-MARKET> 109,790
<LOANS> 201,221
<ALLOWANCE> 3,174
<TOTAL-ASSETS> 423,884
<DEPOSITS> 377,436
<SHORT-TERM> 650
<LIABILITIES-OTHER> 8,954
<LONG-TERM> 7,796
<COMMON> 7,433
0
0
<OTHER-SE> 21,615
<TOTAL-LIABILITIES-AND-EQUITY> 423,884
<INTEREST-LOAN> 4,438
<INTEREST-INVEST> 2,508
<INTEREST-OTHER> 152
<INTEREST-TOTAL> 7,098
<INTEREST-DEPOSIT> 2,858
<INTEREST-EXPENSE> 2,976
<INTEREST-INCOME-NET> 4,122
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 3,684
<INCOME-PRETAX> 1,330
<INCOME-PRE-EXTRAORDINARY> 1,330
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 968
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 4.42
<LOANS-NON> 1,495
<LOANS-PAST> 1,138
<LOANS-TROUBLED> 664
<LOANS-PROBLEM> 532
<ALLOWANCE-OPEN> 3,137
<CHARGE-OFFS> 100
<RECOVERIES> 137
<ALLOWANCE-CLOSE> 3,174
<ALLOWANCE-DOMESTIC> 3,174
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 26
</TABLE>
