<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, 1996
-------------------------------------------------
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 3,146,274 at March
31, 1996.
<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,
1996 1995
--------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,262 $26,321
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,675
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,486 74,284
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,173 2,635
--------- ---------
Total Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 60,659 76,919
Mortgage-backed and related securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,659 65,423
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,519 33,984
--------- ---------
Total Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . 105,178 99,407
Marketable equity securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,167 2,112
Loans:
Loans, net of unearned discount . . . . . . . . . . . . . . . . . . . . . . . . . 234,499 228,778
Less: Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (3,258) (3,317)
--------- ---------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,241 225,461
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,595 11,669
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 273
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,670 3,095
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 776 412
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,554 3,004
--------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 449,050 $ 448,673
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,747 $84,706
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,942 303,602
--------- ---------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395,689 388,308
Short-term obligations:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 4,600
Long-term obligations:
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,275 13,686
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,773 8,727
--------- ---------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,637 415,321
--------- ---------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,146,274 and 3,141,393 shares issued and outstanding) . . . . . . . . . . . . . 7,865 7,853
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,270 16,209
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,863 9,123
Treasury stock (57,448 and 49,421 shares at cost) . . . . . . . . . . . . . . . . (607) (486)
Net unrealized gains on securities available for sale . . . . . . . . . . . . . . 22 653
--------- ---------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . 33,413 33,352
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . $ 449,050 $ 448,673
========= =========
</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,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Interest income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,111 $ 4,438
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 944 1,112
Mortgage-backed and related securities . . . . . . . . . . . . . . . . . . . 1,564 1,396
Other interest earning assets . . . . . . . . . . . . . . . . . . . . . . . 71 152
------------ ------------
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . 7,690 7,098
Interest expense
Time and savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . 3,256 2,858
Short-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 24
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 94
------------ ------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,483 2,976
------------ ------------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,207 4,122
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
------------ ------------
Net interest income after provision for loan losses . . . . . . . . . . . . . . 4,132 4,122
------------ ------------
Noninterest income
Deposit services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 676
Gains on securities available for sale . . . . . . . . . . . . . . . . . . . 126 10
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 206
------------ ------------
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . 1,069 892
------------ ------------
Noninterest expenses
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . 2,357 2,135
Net occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 408
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 75
Advertising, travel & entertainment . . . . . . . . . . . . . . . . . . . . 226 201
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 102
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 210
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 74
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543 479
------------ ------------
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . 3,788 3,684
------------ ------------
Income before federal tax expense . . . . . . . . . . . . . . . . . . . . . . . 1,413 1,330
Provision for tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 362
------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,049 $ 968
============ ============
Earnings Per Share
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .34 $ .31
============ ============
</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,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,049 $ 968
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 503 379
Accretion of discount and loan fees . . . . . . . . . . . . . . . . . . . . . (202) (223)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . . . . 425 36
(Increase) in other receivables and prepaids . . . . . . . . . . . . . . . . (476) (571)
(Increase) decrease in deferred tax asset . . . . . . . . . . . . . . . . . . (38) 110
(Decrease) in interest payable . . . . . . . . . . . . . . . . . . . . . . . (15) (18)
(Gain) on sale of securities available for sale . . . . . . . . . . . . . . . (126) (10)
(Gain) on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (10)
Increase (decrease) in other payables . . . . . . . . . . . . . . . . . . . . (2,939) 3,374
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . (1,749) 4,035
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale . . . . . . . 3,451 6,060
Proceeds from sales of mortgage-backed securities available for sale . . . . . 16,004 7,153
Proceeds from maturities of investment securities available for sale . . . . . 19,602 3,052
Proceeds from maturities of mortgage-backed securities available for sale . . 2,647 1,503
Proceeds from maturities of investment securities held to maturity . . . . . . 474 5,675
Proceeds from maturities of mortgage-backed securities held to maturity . . . 2,518 1,109
Purchases of investment securities available for sale . . . . . . . . . . . . (7,739) (18,198)
Purchases of mortgage-backed securities available for sale . . . . . . . . . . (27,366) (2,464)
Purchases of marketable equity securities available for sale . . . . . . . . . (55) (24)
Net (increase) in federal funds sold . . . . . . . . . . . . . . . . . . . . . (3,675) (6,425)
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . . . (6,266) 310
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . (179) (165)
Proceeds from sales of premises and equipment . . . . . . . . . . . . . . . . 24 42
Proceeds from sales of repossessed assets . . . . . . . . . . . . . . . . . . 337 277
------------ ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (223) (2,095)
</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,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings accounts . . . . . . . . . . . . $ 1,209 $ (9,365)
Net increase in certificates of deposit . . . . . . . . . . . . . . . . . . . 6,172 1,699
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . 73
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . (3,700) 650
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (121) (212)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (309)
Net (decrease) in notes payable . . . . . . . . . . . . . . . . . . . . . . . (411) (201)
------------ ------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . 2,913 (7,429)
------------ ------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 941 (5,489)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 26,321 25,381
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 27,262 $ 19,892
============ ============
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,498 $ 2,995
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80 $ 75
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and repossessed assets through foreclosure . . . . . . . . $ 411 $ 232
</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, 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
========== ========= ========= ========== ========== ==========
Balance at December 31, 1995 . . . . . . $ 7,853 $ 16,209 $ 9,123 $ (486) $ 653 $ 33,352
Net Income . . . . . . . . . . . . . . . 1,049 1,049
Cash dividend ($.10 per share) . . . . . (309) (309)
Common stock issued (4,881 shares) . . . 12 61 73
Purchase of 8,027 shares of
Treasury stock . . . . . . . . . . . . . (121) (121)
Net unrealized (losses) on securities
available for sale (net of tax) . . . . (631) (631)
---------- --------- --------- ---------- ---------- ----------
Balance at March 31, 1996 . . . . . . . . $ 7,865 $ 16,270 $ 9,863 $ (607) $ 22 $ 33,413
========== ========= ========= ========== ========== ==========
</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, 1996, and the related
consolidated statements of income, shareholders' equity and cash flow for the
three month periods ended March 31, 1996 and 1995 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 March 31, 1996 and 1995, the number of shares
used to calculate earnings per share was 3,090,155 and 3,091,356, respectively.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter ended March 31, 1996 compared to
March 31, 1995.
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,
1996 compared to the same period in 1995. Net income for the quarter ended
March 31, 1996 was $1,049,000 as compared to $968,000 for the same period in
1995.
Net Interest Income
Net interest income for the quarter ended March 31, 1996 was $4,207,000, an
increase of $85,000 or 2.1% when compared to the same period in 1995. Average
interest earning assets increased $27,891,000 or 7.4%, while the net interest
spread decreased from 3.7% to 3.3% from March 31, 1995 to March 31, 1996.
During the three months ended March 31, 1996, Average Loans, funded primarily
by the growth in average deposits and average FHLB advances, increased
$32,303,000 or 16.1%, compared to the same period in 1995. The average yield
on loans decreased from 9.0% at March 31, 1995 to 8.8% at March 31, 1996.
Average Securities increased $1,538,000 or .9% for the three months ended March
31, 1996 when compared to the same period in 1995. The overall yield on
Average Securities decreased to 6.0% during the three months ended March 31,
1996, from 6.1% during the same period in 1995.
Interest income from federal funds and other interest earning assets decreased
$81,000 or 53.3% for the three months ended March 31, 1996 when compared to
1995 as a result of the average balance decrease of 54.8%. The average yield
increased slightly from 5.7% in 1995 to 5.8% in 1996.
Total interest expense increased $507,000 or 17.0% to $3,483,000 during the
three months ended March 31, 1996 as compared to $2,976,000 during the same
period in 1995. The increase was attributable to an increase in Average
Interest Bearing Liabilities of $17,555,000 or 5.7% and an increase in the
average yield on interest bearing liabilities from 3.9% in 1995 to 4.3% in
1996.
7
<PAGE> 9
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, 1996 Three Months Ended March 31, 1995
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 232,867 $ 5,111 8.8% $ 200,564 $ 4,438 9.0%
Investment Securities 70,167 944 5.4% 78,556 1,112 5.7%
Mortgage-backed Securities 98,025 1,564 6.4% 88,098 1,396 6.4%
Other Interest Earning
Assets 4,898 71 5.8% 10,848 152 5.7%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS 405,957 7,690 7.6% 378,066 7,098 7.6%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 306,972 $ 3,256 4.3% $ 296,328 $ 2,858 3.9%
Fed Funds Purchased and
Other Interest Bearing
Liabilities 3,415 42 4.9% 2,053 24 4.7%
Long Term Interest Bearing
Liabilities - FHLB Dallas 13,413 185 5.5% 7,864 94 4.8%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES 323,800 3,483 4.3% 306,245 2,976 3.9%
========== ========= ----- ========== ========== -----
NET INTEREST SPREAD 3.3% 3.7%
===== =====
</TABLE>
Noninterest Income
Noninterest income was $1,069,000 for the quarter ended March 31, 1996 compared
to $892,000 for the same period in 1995. A $116,000 increase in gains on sales
of securities available for sale accounted for most of the change when
comparing the three 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 increased $68,000 for the
quarter ended March 31, 1996 primarily as a result of increases in trust
income, credit life commissions and other fee income.
The market value of the entire securities portfolio at March 31, 1996 was
$168,138,000 with a net unrealized gain on that date of $799,000. The net
unrealized gain is comprised of $1,550,000 in unrealized gains and $751,000 in
unrealized losses.
8
<PAGE> 10
Noninterest Expense
Noninterest expense was $3,788,000 for the quarter ended March 31, 1996,
compared to $3,684,000 for the same period of 1995, representing an increase of
$104,000 for the period.
Salaries and employee benefits increased $222,000 or 10.4% during the three
months ended March 31, 1996 when compared to the same period in 1995.
Increased direct salary expense including payroll taxes represented $148,000 of
the increase while higher retirement and health insurance expense accounted for
the remainder of the change.
Advertising, travel and entertainment expense was $226,000 for the quarter
ended March 31, 1996, compared to $201,000 for the same period of 1995,
representing an increase of $25,000 or 12.4%. Increases in donations and
professional education accounted for most of the change for the quarter.
FDIC insurance decreased $209,000 or 100.0% for the quarter ended March 31,
1996 compared to the same period of 1995. During the quarter ended March 31,
1995, the FDIC insurance assessment was $.23 per hundred dollar of deposits.
With the Bank Insurance Fund currently fully funded the insurance expense has
been reduced to $500 per quarter at present. Future FDIC insurance assessments
will be determined by the FDIC based on the funding status of the Bank
Insurance Fund.
Other expense was $543,000 for the quarter ended March 31, 1996, an increase of
$64,000 or 13.4% when compared to the same period in 1995. Professional fees
have increased as a result of the Company choosing to outsource portions of the
compliance, internal audit and computer programming functions rather than
increasing personnel. Costs associated with growth in the mortgage and
indirect auto lending portfolios also contributed to the increase.
Provision for Income Taxes
The provision for tax expense ratio for the three months ended March 31, 1996
was 25.8% compared to 27.2% for the three months ended March 31, 1995. The
reduction is due to an increase in average tax free municipal securities when
comparing the two periods.
Capital Resources
Total shareholders' equity for the Company at March 31, 1996, of $33,413,000
was up .2% or $61,000 from December 31, 1995, and represented 7.4% of total
assets at March 31, 1996 and December 31, 1995. Increases to shareholders'
equity during the three months ended March 31, 1996 were net income of
$1,049,000 and common stock (4,881 shares) issued through dividend reinvestment
of $73,000. Decreases to shareholders' equity consisted of $631,000 in net
unrealized losses on securities available for sale, $309,000 in dividends paid
to shareholders and the purchase of 8,027 shares of treasury stock for
$121,000.
The Federal Reserve Board has risk-based capital guidelines for bank holding
companies. As of March 31, 1996, 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
9
<PAGE> 11
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, 1996, 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 March 31, 1996, these investments
were 20.7% 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
$32,303,000 or 16.1% from the three months ended March 31 1995 to March 31,
1996. The majority of the increase is in Real Estate Loans and Loans to
Individuals which have increased due to expanded 1-4 family mortgage loan
products 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 first quarter ended March 31, 1996, loan charge-offs were $200,000 and
recoveries were $66,000, resulting in net charge-offs of $134,000 for the
quarter ended March 31, 1996. For the three months ended March 31, 1995, loan
recoveries exceeded charge-offs by $37,000.
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.
10
<PAGE> 12
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.
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. The OREO consists primarily of 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 March 31, 1996 were $2,649,000, down $1,257,000
or 32.2% from $3,906,000 at March 31, 1995. From March 31, 1995 to March 31
,1996, loans 90 days past due or more decreased $807,000 or 70.9% to $331,000,
restructured loans decreased $283,000 or 42.6% to $381,000, other real estate
decreased $125,000 or 31.4% to $273,000 and nonaccrual loans decreased
$145,000 or 9.7% to $1,350,000. Repossessed assets increased $103,000 or 48.8%
to $314,000.
Expansion
During 1995, the Company acquired land adjacent to the bank's existing North
Tyler branch and began construction on a new seven lane motor bank facility.
The new motor bank facility is due to be completed during the second quarter of
1996.
Remodeling and expansion of the main bank headquarters on South Beckham began
on April 24, 1996. Also during 1996, the Company plans to open three new
branches. The branches will be located inside two grocery stores in Tyler and
one grocery store in Lindale.
11
<PAGE> 13
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 24, 1996.
(b) The election of three directors (term expiring at the 1999
Annual Meeting) were as follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--------- ------- --------
<S> <C> <C> <C>
Rollins Caldwell 2,029,042 202 56,378
William Sheehy 2,026,386 2,858 56,378
Murph Wilson 2,026,473 2,771 56,378
</TABLE>
Directors continuing until the 1997 Annual Meeting are as
follows:
Herbert C. Buie
Robbie N. Edmonson
W. D. (Joe) Norton
Directors continuing until the 1998 Annual Meeting are as
follows:
Fred E. Bosworth
B. G. Hartley
(c) The matters voted upon and the results of the voting were as
follows:
The shareholders voted 2,084,594 shares in the affirmative,
371 shares in the negative, and 657 abstentions to ratify the
selection of Coopers and Lybrand as Southside Bancshares,
Inc.'s Independent Auditors for the year ending December 31,
1996.
The shareholders voted 2,050,639 shares in the affirmative,
23,329 shares in the negative, and 11,654 abstentions to
approve the amendment to increase the number of shares
authorized for issuance under the 1993 Incentive Stock Option
Plan.
ITEM 5. OTHER INFORMATION
Not Applicable
12
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No.
-------
27 - Financial Data Schedule for the three months
ended March 31, 1996.
(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: 5-13-96
--------------------
/s/ LEE R. GIBSON
-----------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 5-13-96
--------------------
14
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
27 - Financial Data Schedule for the three months ended
March 31, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 27,262
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 134,312
<INVESTMENTS-CARRYING> 33,692
<INVESTMENTS-MARKET> 33,826
<LOANS> 234,499
<ALLOWANCE> 3,258
<TOTAL-ASSETS> 449,050
<DEPOSITS> 395,689
<SHORT-TERM> 900
<LIABILITIES-OTHER> 5,773
<LONG-TERM> 13,275
<COMMON> 7,865
0
0
<OTHER-SE> 25,548
<TOTAL-LIABILITIES-AND-EQUITY> 449,050
<INTEREST-LOAN> 5,111
<INTEREST-INVEST> 2,508
<INTEREST-OTHER> 71
<INTEREST-TOTAL> 7,690
<INTEREST-DEPOSIT> 3,256
<INTEREST-EXPENSE> 3,483
<INTEREST-INCOME-NET> 4,207
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 126
<EXPENSE-OTHER> 3,788
<INCOME-PRETAX> 1,413
<INCOME-PRE-EXTRAORDINARY> 1,413
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,049
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 4.17
<LOANS-NON> 1,350
<LOANS-PAST> 331
<LOANS-TROUBLED> 381
<LOANS-PROBLEM> 344
<ALLOWANCE-OPEN> 3,317
<CHARGE-OFFS> 200
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 3,258
<ALLOWANCE-DOMESTIC> 3,258
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 72
</TABLE>
