<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 June 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
Shares of Common Stock, par value $2.50, Outstanding were 2,985,536 at June 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>
June 30, December 31,
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,703 $ 25,381
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,375 11,100
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,134 25,695
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,083 57,025
--------------- ---------------
Total Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 75,217 82,720
Mortgage-backed and related securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,398 27,654
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,030 60,426
--------------- ---------------
Total Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . 88,428 88,080
Marketable equity securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 2,005
Loans:
Student loans held for resale (at the lower of cost or market) . . . . . . . . . 117
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,133 201,680
Less: Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . (3,425) (3,137)
--------------- ---------------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,708 198,660
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,723 9,875
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 398
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,713 2,581
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141 1,909
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,497 3,512
--------------- ---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 422,833 $ 426,221
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,730 $ 88,008
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,026 297,094
--------------- ---------------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,756 385,102
Short-term obligations:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Long-term obligations:
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,601 7,997
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,862 5,598
--------------- ---------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,719 398,697
--------------- ---------------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
2,985,536 and 2,973,234 shares issued and outstanding) . . . . . . . . . . . . 7,464 7,433
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,645 14,529
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,105 7,480
Treasury stock (49,421 and 23,082 shares at cost) . . . . . . . . . . . . . . . (486) (219)
Net unrealized (losses) on securities available for sale . . . . . . . . . . . . (614) (1,699)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . 30,114 27,524
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $ 422,833 $ 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)
<TABLE>
<CAPTION>
(in thousands, except per share data) Quarter Ended June 30, Six Months Ended June 30,
----------------------------- ------------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,599 $ 4,067 $ 9,037 $ 7,861
Investment securities . . . . . . . . . . . . . . . . . 1,176 796 2,288 1,529
Mortgage-backed and related securities . . . . . . . . . 1,303 1,292 2,699 2,661
Other interest earning assets . . . . . . . . . . . . . 212 199 364 273
------------- ------------- ------------- -------------
Total interest income . . . . . . . . . . . . . . . 7,290 6,354 14,388 12,324
Interest expense
Time and savings deposits . . . . . . . . . . . . . . . 3,034 2,420 5,892 4,650
Short-term obligations . . . . . . . . . . . . . . . . . 111 116 229 265
------------- ------------- ------------- -------------
Total interest expense . . . . . . . . . . . . . . . 3,145 2,536 6,121 4,915
------------- ------------- ------------- -------------
Net interest income . . . . . . . . . . . . . . . . . . . . 4,145 3,818 8,267 7,409
Provision for loan losses . . . . . . . . . . . . . . . . . (300) 50 (300) 200
------------- ------------- ------------- -------------
Net interest income after provision for loan losses . . . . 4,445 3,768 8,567 7,209
------------- ------------- ------------- -------------
Noninterest income
Deposit services . . . . . . . . . . . . . . . . . . . . 685 652 1,361 1,334
Gains (losses) on securities available for sale . . . . 223 (31) 233 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . 210 237 416 476
------------- ------------- ------------- -------------
Total noninterest income . . . . . . . . . . . . . . 1,118 858 2,010 1,834
------------- ------------- ------------- -------------
Noninterest expense
Salaries and employee benefits . . . . . . . . . . . . . 2,209 2,015 4,344 4,113
Net occupancy expense . . . . . . . . . . . . . . . . . 409 330 817 649
Equipment expense . . . . . . . . . . . . . . . . . . . 78 70 153 138
Advertising, travel & entertainment . . . . . . . . . . 211 188 412 386
Supplies . . . . . . . . . . . . . . . . . . . . . . . . 101 92 203 186
FDIC insurance . . . . . . . . . . . . . . . . . . . . . 209 193 419 386
Postage . . . . . . . . . . . . . . . . . . . . . . . . 75 74 149 143
Other . . . . . . . . . . . . . . . . . . . . . . . . . 515 690 994 1,192
------------- ------------- ------------- -------------
Total noninterest expense . . . . . . . . . . . . . 3,807 3,652 7,491 7,193
------------- ------------- ------------- -------------
Income before federal tax expense . . . . . . . . . . . . . 1,756 974 3,086 1,850
Provision for tax expense . . . . . . . . . . . . . . . . . 514 239 876 435
------------- ------------- ------------- -------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,242 $ 735 $ 2,210 $ 1,415
============= ============= ============= =============
Earnings Per Share
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ .42 $ .25 $ .75 $ .48
============= ============= ============= =============
</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>
Six Months Ended
June 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,210 $ 1,415
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 750 1,033
Accretion of discount and loan fees . . . . . . . . . . . . . . . . . . . . . (430) (339)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (300) 200
(Increase) decrease in interest receivable . . . . . . . . . . . . . . . . . (132) 347
(Increase) decrease in other receivables and prepaids . . . . . . . . . . . . 962 (1,108)
Decrease in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . 208
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 47 77
(Gain) on securities available for sale . . . . . . . . . . . . . . . . . . . (233) (24)
(Gain) on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
(Gain) loss on other real estate owned . . . . . . . . . . . . . . . . . . . (20) 110
Increase (decrease) in other payables . . . . . . . . . . . . . . . . . . . . (783) 2,532
Net decrease in student loans held for resale . . . . . . . . . . . . . . . . 117 25
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 2,386 4,268
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale . . . . . . . 23,919 18,593
Proceeds from sales of mortgage-backed securities available for sale . . . . . 10,249 27,414
Proceeds from maturities of investment securities available for sale . . . . . 6,084 2,310
Proceeds from maturities of mortgage-backed securities available for sale . . 2,925 13,355
Proceeds from maturities of investment securities held to maturity . . . . . . 7,206 8,819
Proceeds from maturities of mortgage-backed securities held to maturity . . . 2,504 2,105
Purchases of investment securities available for sale . . . . . . . . . . . . (28,711) (10,336)
Purchases of mortgage-backed securities available for sale . . . . . . . . . . (14,953) (16,383)
Purchases of marketable equity securities available for sale . . . . . . . . . (50) (47)
Purchases of investment securities held to maturity . . . . . . . . . . . . . (21,280)
Purchases of mortgage-backed securities held to maturity . . . . . . . . . . . (786)
Net (increase) in federal funds sold . . . . . . . . . . . . . . . . . . . . . (275) (16,825)
Net (increase) in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,366) (16,687)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . (2,390) (819)
Proceeds from sales of premises and equipment . . . . . . . . . . . . . . . . 42
Proceeds from sales of repossessed assets . . . . . . . . . . . . . . . . . . 554 595
Proceeds from sales of other real estate owned . . . . . . . . . . . . . . . . 145 754
------------ ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . 3,883 (9,218)
</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>
Six Months Ended
June 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings accounts . . . . . . . . . . . . (9,427) 7,149
Net increase in certificates of deposit . . . . . . . . . . . . . . . . . . . 4,081 11,094
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . 500 (7,600)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (267)
Net (decrease) in notes payable . . . . . . . . . . . . . . . . . . . . . . . (396) (437)
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 . . . . . . . . . . . . (5,947) 6,086
------------ ------------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . 322 1,136
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 25,381 19,792
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 25,703 $ 20,928
============ ============
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,075 $ 4,838
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 575 $ 553
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and repossessed assets through foreclosure . . . . . . . . $ 430 $ 508
</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 . . . . . . . . . . . . . . . 1,415 1,415
Dividends ($.10 per share) . . . . . . . (281) (281)
Common stock issued (8,444 shares) . . . 21 63 84
Net unrealized (losses) on securities
available for sale (net of tax) . . . . (2,122) (2,122)
---------- --------- --------- ---------- ---------- ----------
Balance at June 30, 1994 . . . . . . . . $ 7,050 $ 13,421 $ 7,200 $ $ (1,334) $ 26,337
========== ========= ========= ========== ========== ==========
Balance at December 31, 1994 . . . . . . $ 7,433 $ 14,529 $ 7,480 $ (219) $ (1,699) $ 27,524
Net Income . . . . . . . . . . . . . . . 2,210 2,210
Dividends ($.20 per share) . . . . . . . (585) (585)
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) . . . . 1,085 1,085
---------- --------- --------- ---------- ---------- ----------
Balance at June 30, 1995 . . . . . . . . $ 7,464 $ 14,645 $ 9,105 $ (486) $ (614) $ 30,114
========== ========= ========= ========== ========== ==========
</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 June 30, 1995, and the related
consolidated statements of income, shareholders' equity and cash flow for the
six month periods ended June 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 splits and dividends. As of June 30, 1995 and 1994, the number
of shares used to calculate earnings per share was 2,936,168 and 2,953,462,
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 June 30, 1995, the recorded investment in loans (primarily nonaccrual loans)
for which impairment has been recognized in accordance with FAS114 totaled
$1,425,000 with a corresponding valuation allowance of $452,000. For the six
months ended June 30, 1995, the average recorded investment in impaired loans
was approximately $1,343,000. During the six months ended June 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. 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 quarter ended June 30, 1995, the Company reduced its reserve for
loan losses by $300,000. As reflected in the chart below, the bank realized
significant recoveries on loans previously charged off or placed in nonearning
assets. Some of the recoveries were a result of many years of efforts and were
significant amounts.
The following is a summary of the Reserve for Loan Losses for the six months
ended June 30, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,137 $ 2,846
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (300) 200
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (230) (232)
Recoveries of loans charged off . . . . . . . . . . . . . . . . . . . . . . 818 200
------------ ------------
Net loan (losses) recoveries . . . . . . . . . . . . . . . . . . . . . . 588 (32)
------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,425 $ 3,014
============ ============
</TABLE>
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter and six months ended June
30, 1995 compared to June 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 six months
ended June 30, 1995 compared to the same period in 1994. Net income for the
quarter and six months ended June 30, 1995 was $1,242,000 and $2,210,000, as
compared to $735,000 and $1,415,000 for the same period in 1994.
Net Interest Income
Net interest income for the quarter and six months ended June 30, 1995 was
$4,145,000 and $8,267,000, an increase of $327,000 and $858,000 or 8.6% and
11.6%, respectively, when compared to the same periods in 1994. The net
interest spread increased from 3.4% to 3.7% from June 30, 1994 to June 30,
1995.
During the six months ended June 30, 1995, Average Loans, funded primarily by
deposit growth, increased $8,550,000 or 4.4%, compared to the same period in
1994. The average yield on loans increased from 8.2% at June 30, 1994 to 9.0%
at June 30, 1995 reflecting the higher average overall interest rates.
Average Securities increased $2,538,000 or 1.6% for the six months ended June
30, 1995 when compared to 1994. The overall yield on Average Securities
increased to 6.1% during the six months ended June 30, 1995, up from 5.2%
during the same period in 1994 as a result of the higher overall average
interest rates. The net result during the first six months of 1995 was an
increase in interest income from Securities of $797,000 or 19.0% 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
$91,000 or 33.3% for the six months ended June 30, 1995 when compared to 1994.
During this time the average balance decreased 9.3% and the yield increased
from 4.0% in 1994 to 5.9% in 1995. The change is primarily a result of an
increase in the yield on Federal Funds Sold.
Total interest expense increased $1,206,000 or 24.5% to $6,121,000 during the
six months ended June 30, 1995 as compared to $4,915,000 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 $4,963,000 or 1.7%.
The average rate of interest bearing liabilities increased to 4.0% in 1995 from
3.3% 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)
Six Months Ended June 30, 1995 Six Months Ended June 30, 1994
------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 202,217 $ 9,037 9.0% $ 193,667 $ 7,861 8.2%
Investment Securities 79,406 2,288 5.8% 61,511 1,529 5.0%
Mortgage-backed Securities 85,083 2,699 6.4% 100,440 2,661 5.3%
Other Interest Earning
Assets 12,394 364 5.9% 13,658 273 4.0%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS 379,100 14,388 7.7% 369,276 12,324 6.7%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 296,053 $ 5,892 4.0% $ 288,107 $ 4,650 3.3%
Other Interest Bearing
Liabilities 9,444 229 4.9% 12,427 265 4.3%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES 305,497 6,121 4.0% 300,534 4,915 3.3%
========== ========= ----- ========== ========== -----
NET INTEREST SPREAD 3.7% 3.4%
===== =====
</TABLE>
Noninterest Income
Noninterest income for the six months ended June 30, 1995 was $2,010,000
representing a $176,000 or 9.6% increase from the $1,834,000 reported for the
same period in 1994. A $209,000 increase in gains on sales of securities
available for sale was the primary reason for the change. Sales of securities
available for sale were the result of changes in economic conditions and a
change in the mix of the securities portfolio.
The market value of the entire securities portfolio at June 30, 1995 was
$166,212,000 with a net unrealized gain on that date of $1,029,000. The net
unrealized gain is comprised of $1,813,000 in unrealized gains and $784,000 in
unrealized losses.
Noninterest Expense
Noninterest expense was $7,491,000 for the six months ended June 30, 1995,
compared to $7,193,000 for the same period of 1994, representing an increase of
$298,000 or 4.1%.
Salaries and employee benefits increased $231,000 or 5.6% during the six months
ended June 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.
9
<PAGE> 11
Net occupancy expense increased $168,000 or 25.9% as a result of the opening of
the new motor bank facility and the operations annex during the fourth quarter
of 1994.
Other expense decreased $198,000 or 16.6% during the six months ended June 30,
1995 when compared to the same period in 1994. The decrease is primarily
attributable to computer conversion costs and losses on Other Real Estate Owned
experienced during 1994.
Provision for Income Taxes
The provision for tax expense ratio for the six months ended June 30, 1995 was
28.4% compared to 23.5% for the six months ended June 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 six months ended June 30, 1995 compared to
June 30, 1994.
Capital Resources
Total shareholders' equity for the Company at June 30, 1995, of $30,114,000 was
up 9.4% or $2,590,000 from December 31, 1994, and represented 7.1% of total
assets versus 6.5% at December 31, 1994. Items increasing shareholders' equity
during the six months ended June 30, 1995 were net income of $2,210,000, common
stock issued through dividend reinvestment of $147,000 and $1,085,000 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. 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 purchased. The Board approved a purchase
limitation of $250,000 for the second 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 at any time.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. As of June 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 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 June 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
reviewed accordingly. Regulatory authorities require that any dividend
payments made by either the Company or Southside Bank not exceed earnings for
that year.
10
<PAGE> 12
In June of 1995, pursuant to its stock option plan, the Company granted seven
executive officers options to purchase 56,000 total shares of stock at an
exercise price of $12.00 per share. At the time these options were granted,
the market price of the stock was $12.00 per share. The options are scheduled
to expire in June 2005.
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 June 30, 1995, these investments were
25.4% 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
$8,550,000 or 4.4% from the six months ended June 30, 1994 to June 30, 1995.
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 second quarter and six months ended June 30, 1995, loan charge-offs
were $130,000 and $230,000 and recoveries were $681,000 and $818,000,
respectively, resulting in net recoveries of $551,000 and $588,000. For the
six months ended June 30, 1994, loan charge-offs exceeded recoveries by
$32,000. During the quarter ended June 30, 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.
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.
11
<PAGE> 13
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.
Other real estate owned 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 June 30, 1995 were $2,512,000, down $1,241,000 or
33.1% from $3,753,000 at June 30, 1994. The balance of OREO at June 30, 1995
decreased $494,000 or 64.4% since June 30, 1994 as a result of sales. From
June 30, 1994 to June 30, 1995 nonaccrual loans decreased $537,000 or 27.4% and
restructured loans decreased $359,000 or 50.0%.
Expansion
The Company's new South Broadway branch opened on April 24, 1995. During the
second quarter of 1995, additional land was acquired at the North Tyler branch
for expansion of the motor bank facility. A remodeling and expansion of the
main bank facilities on South Beckham is also currently in the planning phase.
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
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No.
---------
27 - Financial Data Schedule for the six months
ended June 30, 1995.
(b) Reports on Form 8-K - None
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHSIDE BANCSHARES, INC.
(Registrant)
BY: /s/ B.G. HARTLEY
B.G. Hartley, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
DATE: 08-09-95
/s/ LEE R. GIBSON
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 08-09-95
14
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Exhibit Description Page
----------- ------------------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 25,703
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,375
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,587
<INVESTMENTS-CARRYING> 108,113
<INVESTMENTS-MARKET> 108,625
<LOANS> 205,133
<ALLOWANCE> 3,425
<TOTAL-ASSETS> 422,833
<DEPOSITS> 379,756
<SHORT-TERM> 500
<LIABILITIES-OTHER> 4,862
<LONG-TERM> 7,601
<COMMON> 7,464
0
0
<OTHER-SE> 22,650
<TOTAL-LIABILITIES-AND-EQUITY> 422,833
<INTEREST-LOAN> 9,037
<INTEREST-INVEST> 4,987
<INTEREST-OTHER> 364
<INTEREST-TOTAL> 14,388
<INTEREST-DEPOSIT> 5,892
<INTEREST-EXPENSE> 6,121
<INTEREST-INCOME-NET> 8,267
<LOAN-LOSSES> (300)
<SECURITIES-GAINS> 233
<EXPENSE-OTHER> 7,491
<INCOME-PRETAX> 3,086
<INCOME-PRE-EXTRAORDINARY> 3,086
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,210
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<YIELD-ACTUAL> 4.40
<LOANS-NON> 1,425
<LOANS-PAST> 323
<LOANS-TROUBLED> 359
<LOANS-PROBLEM> 548
<ALLOWANCE-OPEN> 3,137
<CHARGE-OFFS> 230
<RECOVERIES> 818
<ALLOWANCE-CLOSE> 3,425
<ALLOWANCE-DOMESTIC> 3,425
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 100
</TABLE>
