<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 September 30, 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)
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)
(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 3,132,895 shares of
Common Stock, par value $2.50, Outstanding at September 30, 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>
September 30, December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,997 $ 25,381
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,975 11,100
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,297 25,695
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,014 57,025
--------------- ---------------
Total Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 67,311 82,720
Mortgage-backed and related securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,498 27,654
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,506 60,426
--------------- ---------------
Total Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . 91,004 88,080
Marketable equity securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,112 2,005
Loans:
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,135 201,797
Less: Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . (3,254) (3,137)
--------------- ---------------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,881 198,660
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,554 9,875
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 398
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,537 2,581
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 986 1,909
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,708 3,512
--------------- ---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,338 $ 426,221
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,906 $ 88,008
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,004 297,094
--------------- ---------------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,910 385,102
Short-term obligations:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550
Long-term obligations:
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,910 7,997
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,566 5,598
--------------- ---------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,936 398,697
--------------- ---------------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,132,895 and 2,973,234 shares issued and outstanding) . . . . . . . . . . . . 7,832 7,433
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,119 14,529
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,397 7,480
Treasury stock (49,421 and 23,082 shares at cost) . . . . . . . . . . . . . . . (486) (219)
Net unrealized (losses) on securities available for sale . . . . . . . . . . . . (460) (1,699)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . 31,402 27,524
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $ 428,338 $ 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>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income
Loans . . . . . . . . . . . . . . . . . . . . . . . . $ 4,817 $ 4,491 $ 13,854 $ 12,352
Investment securities . . . . . . . . . . . . . . . . . 1,054 965 3,342 2,494
Mortgage-backed and related securities . . . . . . . . . 1,460 1,251 4,159 3,912
Other interest earning assets . . . . . . . . . . . . . 174 197 538 470
-------- ---------- ---------- ----------
Total interest income . . . . . . . . . . . . . . . 7,505 6,904 21,893 19,228
Interest expense
Time and savings deposits . . . . . . . . . . . . . . . 3,160 2,612 9,052 7,262
Short-term obligations . . . . . . . . . . . . . . . . . 121 113 350 378
-------- ---------- ---------- ----------
Total interest expense . . . . . . . . . . . . . . . 3,281 2,725 9,402 7,640
-------- ---------- ---------- ----------
Net interest income . . . . . . . . . . . . . . . . . . . . 4,224 4,179 12,491 11,588
Provision for loan losses . . . . . . . . . . . . . . . . . 50 (300) 250
-------- ---------- ---------- ----------
Net interest income after provision for loan losses . . . . 4,224 4,129 12,791 11,338
-------- ---------- ---------- ----------
Noninterest income
Deposit services . . . . . . . . . . . . . . . . . . . . 693 659 2,054 1,993
Gains on securities available for sale . . . . . . . . . 11 1 244 25
Other . . . . . . . . . . . . . . . . . . . . . . . . . 193 243 609 719
-------- ---------- ---------- ----------
Total noninterest income . . . . . . . . . . . . . . 897 903 2,907 2,737
-------- ---------- ---------- ----------
Noninterest expense
Salaries and employee benefits . . . . . . . . . . . . . 2,143 2,118 6,487 6,231
Net occupancy expense . . . . . . . . . . . . . . . . . 406 361 1,223 1,010
Equipment expense . . . . . . . . . . . . . . . . . . . 73 74 226 212
Advertising, travel & entertainment . . . . . . . . . . 241 171 653 557
Supplies . . . . . . . . . . . . . . . . . . . . . . . . 82 94 285 280
FDIC insurance . . . . . . . . . . . . . . . . . . . . . (21) 202 398 588
Postage . . . . . . . . . . . . . . . . . . . . . . . . 73 66 222 209
Other . . . . . . . . . . . . . . . . . . . . . . . . . 549 423 1,543 1,615
-------- ---------- ---------- ----------
Total noninterest expense . . . . . . . . . . . . . 3,546 3,509 11,037 10,702
-------- ---------- ---------- ----------
Income before federal tax expense . . . . . . . . . . . . . 1,575 1,523 4,661 3,373
Provision for tax expense . . . . . . . . . . . . . . . . . 441 444 1,317 879
-------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 1,134 $ 1,079 $ 3,344 $ 2,494
========= ========== ========== ==========
Earnings Per Share
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ .37 $ .35 $ 1.08 $ .80
========= ========== ========== ==========
</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>
Nine Months Ended
September 30,
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,344 $ 2,494
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,119 1,412
Accretion of discount and loan fees . . . . . . . . . . . . . . . . . . . . . (623) (564)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (300) 250
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . . . . 44 349
(Increase) decrease in other receivables and prepaids . . . . . . . . . . . . 862 (2,665)
Decrease in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . 284
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 74 66
(Gain) on sale of securities available for sale . . . . . . . . . . . . . . . (244) (25)
(Gain) on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (10)
(Gain) loss on other real estate owned . . . . . . . . . . . . . . . . . . . (20) 28
Increase in other payables . . . . . . . . . . . . . . . . . . . . . . . . . 894 487
Net decrease in student loans held for resale . . . . . . . . . . . . . . . . 117 27
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 5,541 1,849
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale . . . . . . . 28,940 18,593
Proceeds from sales of mortgage-backed securities available for sale . . . . . 13,118 27,414
Proceeds from sales of marketable equity securities available for sale . . . . 2
Proceeds from maturities of investment securities available for sale . . . . . 11,457 4,430
Proceeds from maturities of mortgage-backed securities available for sale . . 4,490 15,131
Proceeds from maturities of investment securities held to maturity . . . . . . 13,393 10,038
Proceeds from maturities of mortgage-backed securities held to maturity . . . 4,095 4,145
Purchases of investment securities available for sale . . . . . . . . . . . . (37,233) (17,742)
Purchases of mortgage-backed securities available for sale . . . . . . . . . . (23,397) (17,926)
Purchases of marketable equity securities available for sale . . . . . . . . . (107) (47)
Purchases of investment securities held to maturity . . . . . . . . . . . . . (24,048)
Purchases of mortgage-backed securities held to maturity . . . . . . . . . . . (5,971)
Net (increase) in federal funds sold . . . . . . . . . . . . . . . . . . . . . (2,875) (9,250)
Net (increase) in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,916) (17,013)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . (2,463) (1,009)
Proceeds from sales of premises and equipment . . . . . . . . . . . . . . . . 42 31
Proceeds from sales of repossessed assets . . . . . . . . . . . . . . . . . . 820 804
Proceeds from sales of other real estate owned . . . . . . . . . . . . . . . . 145 1,517
------------ ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (4,491) (10,901)
</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>
Nine Months Ended
September 30,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings accounts . . . . . . . . . . . . (11,655) 7,477
Net increase in certificates of deposit . . . . . . . . . . . . . . . . . . . 6,463 15,071
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . 550 (7,400)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (267)
Net increase (decrease) in notes payable . . . . . . . . . . . . . . . . . . . 1,913 (648)
Net (decrease) in securities sold under agreement to repurchase . . . . . . . (3,923)
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . 147 84
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (585) (281)
------------ ------------
Net cash provided (used) by financing activities . . . . . . . . . . . . (3,434) 10,380
------------ ------------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . (2,384) 1,328
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 25,381 19,792
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 22,997 $ 21,120
============ ============
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,329 $ 7,574
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990 $ 553
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and repossessed assets through foreclosure . . . . . . . . $ 807 $ 710
</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> <C> <C>
Balance at December 31, 1993 . . . . . . $ 7,029 $ 13,358 $ 6,066 $ $ 788 $ 27,241
Net Income . . . . . . . . . . . . . . . 2,494 2,494
Dividends ($.10 per share) . . . . . . . (281) (281)
Stock Dividend . . . . . . . . . . . . . 354 1,026 (1,380)
Common stock issued (8,444 shares) . . . 21 63 84
Net unrealized (losses) on securities
available for sale (net of tax) . . . . (2,197) (2,197)
---------- --------- --------- ---------- ---------- ----------
Balance at September 30, 1994 . . . . . . $ 7,404 $ 14,447 $ 6,899 $ $ (1,409) $ 27,341
========== ========= ========= ========== ========== ==========
Balance at December 31, 1994 . . . . . . $ 7,433 $ 14,529 $ 7,480 $ (219) $ (1,699) $ 27,524
Net Income . . . . . . . . . . . . . . . 3,344 3,344
Dividends ($.20 per share) . . . . . . . (585) (585)
Stock Dividend . . . . . . . . . . . . . 368 1,474 (1,842)
Common stock issued (12,302 shares) . . . 31 116 147
Purchase of 26,339 shares of
Treasury stock . . . . . . . . . . . . . (267) (267)
Net unrealized gains on securities
available for sale (net of tax) . . . . 1,239 1,239
---------- --------- --------- ---------- ---------- ----------
Balance at September 30, 1995 . . . . . . $ 7,832 $ 16,119 $ 8,397 $ (486) $ (460) $ 31,402
========== ========= ========= ========== ========== ==========
</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 September 30, 1995, and the related
consolidated statements of income, shareholders' equity and cash flow for the
nine month periods ended September 30, 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 dividends. As of September 30, 1995 and 1994, the number of
shares used to calculate earnings per share was 3,083,511 and 3,104,553,
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 collateralized 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 September 30, 1995, the recorded investment in loans (primarily nonaccrual
loans) for which impairment has been recognized in accordance with FAS114
totaled $1,348,000 with a corresponding valuation allowance of $394,000. For
the nine months ended September 30, 1995, the average recorded investment in
impaired loans was approximately $1,355,000. During the nine months ended
September 30, 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 (OREO). 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
During the second quarter of 1995, the Company reduced its reserve for loan
losses by $300,000. As reflected in the chart below, the bank realized
significant recoveries primarily in the second quarter on loans previously
charged off or placed in nonearning assets.
The following is a summary of the Reserve for Loan Losses for the nine months
ended September 30, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,137 $ 2,846
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (300) 250
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (458) (399)
Recoveries of loans charged off . . . . . . . . . . . . . . . . . . . . . . 875 326
------------ ------------
Net loan (losses) recoveries . . . . . . . . . . . . . . . . . . . . . . 417 (73)
------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,254 $ 3,023
============ ============
</TABLE>
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter and nine months ended September 30,
1995 compared to September 30, 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 and nine months
ended September 30, 1995 compared to the same period in 1994. Net income for
the quarter and nine months ended September 30, 1995 was $1,134,000 and
$3,344,000, as compared to $1,079,000 and $2,494,000 for the same period in
1994.
Net Interest Income
Net interest income for the quarter and nine months ended September 30, 1995
was $4,224,000 and $12,491,000, an increase of $45,000 and $903,000 or 1.1% and
7.8%, respectively, when compared to the same periods in 1994. The net
interest spread increased from 3.5% to 3.6% from September 30, 1994 to
September 30, 1995.
During the nine months ended September 30, 1995, Average Loans, funded
primarily by average deposit growth, increased $9,170,000 or 4.7%, compared to
the same period in 1994. The average yield on loans increased from 8.4% at
September 30, 1994 to 9.0% at September 30, 1995 reflecting the higher average
overall interest rates.
Average Securities increased $2,127,000 or 1.3% for the nine months ended
September 30, 1995 when compared to 1994. The overall yield on Average
Securities increased to 6.1% during the nine months ended September 30, 1995,
up from 5.3% during the same period in 1994 as a result of the higher overall
average interest rates. The net result during the first nine months of 1995
was an increase in interest income from Securities of $1,095,000 or 17.1%
compared to the same period in 1994 as a direct result of higher average
overall yields.
Interest income from federal funds and other interest earning assets increased
$68,000 or 14.5% for the nine months ended September 30, 1995 when compared to
1994. During this time the average balance decreased 19.2% and the yield
increased from 4.2% in 1994 to 5.9% in 1995. The change is primarily a result
of an average overall increase in the yield on Federal Funds Sold.
Total interest expense increased $1,762,000 or 23.1% to $9,402,000 during the
nine months ended September 30, 1995 as compared to $7,640,000 during the same
period in 1994. The increase was attributable to higher average interest rates
along with an increase in Average Interest Bearing Liabilities of $3,421,000 or
1.1%. The average rate of interest bearing liabilities increased to 4.1% in
1995 from 3.4% 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)
Nine Months Ended September 30, 1995 Nine Months Ended September 30, 1994
-------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 204,720 $ 13,854 9.0% $ 195,550 $ 12,352 8.4%
Investment Securities 76,932 3,342 5.8% 65,623 2,494 5.1%
Mortgage-backed Securities 87,084 4,159 6.4% 96,266 3,912 5.4%
Other Interest Earning
Assets 12,127 538 5.9% 15,005 470 4.2%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS 380,863 21,893 7.7% 372,444 19,228 6.9%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 296,890 $ 9,052 4.1% $ 291,537 $ 7,262 3.3%
Other Interest Bearing
Liabilities 9,505 350 4.9% 11,437 378 4.4%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES 306,395 9,402 4.1% 302,974 7,640 3.4%
========== ========= ----- ========== ========== -----
NET INTEREST SPREAD 3.6% 3.5%
===== =====
</TABLE>
Noninterest Income
Noninterest income was $897,000 and $2,907,000 for the quarter and nine months
ended September 30, 1995 compared to $903,000 and $2,737,000 for the same
period in 1994. A $219,000 increase in gains on sales of securities available
for sale, occurring primarily during the second quarter of 1995, accounted for
most of the change when comparing the nine month periods. Sales of securities
available for sale were the result of changes in economic conditions and a
change in the mix of the securities portfolio.
Other noninterest income decreased $50,000 and $110,000 for the quarter and
nine months ended September 30, 1995 due to decreases in income from other real
estate owned and other recoveries. The number of OREO properties on the
Company's books has continued to decrease and some properties were sold at a
gain during the quarter and nine months ended September 30, 1994.
The market value of the entire securities portfolio at September 30, 1995 was
$161,427,000 with a net unrealized gain on that date of $1,613,000. The net
unrealized gain is comprised of $2,103,000 in unrealized gains and $490,000 in
unrealized losses.
Noninterest Expense
Noninterest expense was $3,546,000 and $11,037,000 for the quarter and nine
months ended
9
<PAGE> 11
September 30, 1995, compared to $3,509,000 and $10,702,000 for the same period
of 1994, representing an increase of $37,000 and $335,000 for the respective
periods.
Salaries and employee benefits increased $256,000 or 4.1% during the nine
months ended September 30, 1995 when compared to the same period in 1994.
Increased direct salary and retirement expense due to additional personnel
accounted for most of this change.
Net occupancy expense increased $213,000 or 21.1% during the nine months ended
September 30, 1995 when compared to the same period in 1994. The opening of
the new motor bank facility and the operations annex during the fourth quarter
of 1994 contributed to the increase.
FDIC insurance decreased $223,000 and $190,000 or 110.4% and 32.3% for the
quarter and nine months ended September 30, 1995 compared to the same periods
of 1994. During August 1995, the FDIC announced a decrease in the insurance
premiums from .23 per hundred dollar of deposits insured to .04 per hundred
dollar insured effective June 1, 1995. As a result, Southside Bank received a
refund of $230,000 in September 1995.
Advertising, travel and entertainment expense was $241,000 and $653,000 for the
quarter and nine months ended September 30, 1995, compared to $171,000 and
$557,000 for the same period of 1994, representing an increase of $70,000 and
$96,000 or 40.9% and 17.2%. Increases in direct advertising and donations
accounted for most of this change for the quarter and nine months.
Other expense was $549,000 and $1,543,000 for the quarter and nine months ended
September 30, 1995, an increase for the quarter of $126,000 and a decrease of
$72,000 for the nine month period. Professional fees have increased as a
result of the Company opting to outsource various functions such as compliance,
internal audit and computer programming rather than increasing personnel. Also
contributing to the increase for the quarter was an increase in net OREO
expenses due to OREO gains realized during the third quarter of 1994.
Provision for Income Taxes
The provision for tax expense ratio for the nine months ended September 30,
1995 was 28.3% compared to 26.1% for the nine months ended September 30, 1994.
The increased income tax expense is a result of higher pre-tax income with
relatively little change in tax-free income for the nine months ended September
30, 1995 compared to September 30, 1994.
Capital Resources
Total shareholders' equity for the Company at September 30, 1995, of
$31,402,000 was up 14.1% or $3,878,000 from December 31, 1994, and represented
7.3% of total assets versus 6.5% at December 31, 1994. Items increasing
shareholders' equity during the nine months ended September 30, 1995 were net
income of $3,344,000, common stock issued through dividend reinvestment of
$147,000 and $1,239,000 in net unrealized gains on securities available for
sale. Decreases to shareholders' equity consisted of $585,000 in dividends
paid to shareholders during the second quarter and the purchase of 26,339
shares of treasury stock for $267,000. During the third quarter of 1995, the
Company issued a 5% stock dividend, which had no effect on Total Shareholders'
Equity.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. As of September 30, 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
10
<PAGE> 12
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. 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 September 30, 1995, the
Company and Southside Bank exceeded all regulatory minimum capital ratios.
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
determined 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. Through this process, market value
volatility is also a key consideration.
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 September 30, 1995, these investments
were 23.8% of Total Assets. Historically, the overall liquidity of the Company
has been enhanced by a significant aggregate amount of core deposits and by the
lack of dependence on public 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
$9,170,000 or 4.7% from the nine months ended September 30, 1994 to September
30, 1995. The majority of the increase is in Real Estate Loans and Loans to
Individuals which have increased due to expanded mortgage loan products,
favorable real estate market conditions 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 third quarter and nine months ended September 30, 1995, loan
charge-offs were $228,000 and $458,000 and recoveries were $57,000 and
$875,000, respectively, resulting in net charge-offs of $171,000 and net
recoveries of $417,000 for the quarter and nine months ended September 30,
1995. For the nine months ended September 30, 1994, loan charge-offs exceeded
recoveries by $74,000. During the second quarter of 1995, the Company reduced
its reserve for loan losses by $300,000. This was due to the significant
recoveries realized during the quarter and based on the Company's review of the
loan loss reserve.
11
<PAGE> 13
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 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.
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 foreclosure 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 primarily
raw land and oil and gas interests. The Company is actively marketing all
properties and none are being held for investment purposes.
Total nonperforming assets at September 30, 1995 were $2,401,000, down $714,000
or 22.9% from $3,115,000 at September 30, 1994. The balance of OREO at
September 30, 1995 decreased $191,000 or 41.2% since September 30, 1994 as a
result of sales. From September 30, 1994 to September 30, 1995 nonaccrual
loans decreased $337,000 or 20% and restructured loans decreased $363,000 or
51.3%.
12
<PAGE> 14
Expansion
The Company's new South Broadway branch opened on April 24, 1995. Construction
began during the third quarter of 1995 on the expansion of the North Tyler
branch motor bank facility. Remodeling and expansion of the main bank
facilities on South Beckham is also currently in the planning phase.
13
<PAGE> 15
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
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No.
---------
<S> <C>
27 - Financial Data Schedule for the nine months ended September 30, 1995.
</TABLE>
(b) Reports on Form 8-K - None
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 thereunto duly authorized.
<TABLE>
<S> <C>
SOUTHSIDE BANCSHARES, INC.
(Registrant)
BY: /s/ B.G. HARTLEY
----------------------------------------------------
B.G. Hartley, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
DATE: 11-09-95
---------------------------------
/s/ LEE R. GIBSON
-----------------------------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 11-09-95
---------------------------------
</TABLE>
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27 Financial Data Schedule for the nine months ended September 30, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 22,997
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,975
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,907
<INVESTMENTS-CARRYING> 100,520
<INVESTMENTS-MARKET> 101,520
<LOANS> 216,135
<ALLOWANCE> 3,254
<TOTAL-ASSETS> 428,338
<DEPOSITS> 379,910
<SHORT-TERM> 550
<LIABILITIES-OTHER> 6,566
<LONG-TERM> 9,910
<COMMON> 7,832
0
0
<OTHER-SE> 23,570
<TOTAL-LIABILITIES-AND-EQUITY> 428,338
<INTEREST-LOAN> 13,854
<INTEREST-INVEST> 7,501
<INTEREST-OTHER> 538
<INTEREST-TOTAL> 21,893
<INTEREST-DEPOSIT> 9,052
<INTEREST-EXPENSE> 9,402
<INTEREST-INCOME-NET> 12,491
<LOAN-LOSSES> (300)
<SECURITIES-GAINS> 244
<EXPENSE-OTHER> 11,037
<INCOME-PRETAX> 4,661
<INCOME-PRE-EXTRAORDINARY> 4,661
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,344
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 4.38
<LOANS-NON> 1,348
<LOANS-PAST> 193
<LOANS-TROUBLED> 344
<LOANS-PROBLEM> 483
<ALLOWANCE-OPEN> 3,137
<CHARGE-OFFS> 458
<RECOVERIES> 875
<ALLOWANCE-CLOSE> 3,254
<ALLOWANCE-DOMESTIC> 3,254
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 35
</TABLE>
