<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, 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 3,308,945 shares of
Common Stock, par value $2.50, outstanding at November 7, 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>
September 30, December 31,
1996 1995
------------ -----------
ASSETS
<S> <C> <C>
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,021 $ 26,321
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,834 74,284
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794 2,635
------------ -----------
Total Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,628 76,919
Mortgage-backed and related securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,256 65,423
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,064 33,984
------------ -----------
Total Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,320 99,407
Marketable equity securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,193 2,112
Loans:
Loans, net of unearned discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,002 228,778
Less: Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,296) (3,317)
------------ -----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,706 225,461
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,156 11,669
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 273
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,766 3,095
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947 412
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,207 3,004
------------ -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 461,217 $ 448,673
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,150 $ 84,706
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321,102 303,602
------------ -----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,252 388,308
Short-term obligations:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,075 4,600
Long-term obligations:
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,480 13,686
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,574 8,727
------------ -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426,381 415,321
------------ -----------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,308,945 and 3,141,393 shares issued and outstanding) . . . . . . . . . . . . . . . 8,272 7,853
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,384 16,209
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,993 9,123
Treasury stock (62,553 and 49,421 shares at cost) . . . . . . . . . . . . . . . . . . . (771) (486)
Net unrealized gains (losses) on securities available for sale . . . . . . . . . . . . . (42) 653
------------ -----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,836 33,352
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . $ 461,217 $ 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>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,455 $ 4,817 $ 15,786 $ 13,854
Investment securities . . . . . . . . . . . . . . . . . 827 1,054 2,621 3,342
Mortgage-backed and related securities . . . . . . . . . 1,711 1,460 4,977 4,159
Other interest earning assets . . . . . . . . . . . . . 64 174 216 538
------------- ------------- ------------- -------------
Total interest income . . . . . . . . . . . . . . . 8,057 7,505 23,600 21,893
Interest expense
Time and savings deposits . . . . . . . . . . . . . . . 3,457 3,160 10,061 9,052
Short-term obligations . . . . . . . . . . . . . . . . . 29 24 108 67
Long-term obligations . . . . . . . . . . . . . . . . . 173 97 537 283
------------- ------------- ------------- -------------
Total interest expense . . . . . . . . . . . . . . . 3,659 3,281 10,706 9,402
------------- ------------- ------------- -------------
Net interest income . . . . . . . . . . . . . . . . . . . . 4,398 4,224 12,894 12,491
Provision for loan losses . . . . . . . . . . . . . . . . . 150 350 (300)
------------- ------------- ------------- -------------
Net interest income after provision for loan losses . . . . 4,248 4,224 12,544 12,791
------------- ------------- ------------- -------------
Noninterest income
Deposit services . . . . . . . . . . . . . . . . . . . . 702 693 2,061 2,054
Gains (losses) on securities available for sale . . . . (2) 11 135 244
Other . . . . . . . . . . . . . . . . . . . . . . . . . 302 193 848 609
------------- ------------- ------------- -------------
Total noninterest income . . . . . . . . . . . . . . 1,002 897 3,044 2,907
------------- ------------- ------------- -------------
Noninterest expense
Salaries and employee benefits . . . . . . . . . . . . . 2,399 2,143 7,100 6,487
Net occupancy expense . . . . . . . . . . . . . . . . . 459 406 1,287 1,223
Equipment expense . . . . . . . . . . . . . . . . . . . 83 73 229 226
Advertising, travel & entertainment . . . . . . . . . . 221 241 644 653
Supplies . . . . . . . . . . . . . . . . . . . . . . . . 112 82 331 285
FDIC insurance . . . . . . . . . . . . . . . . . . . . . (21) 1 398
Postage . . . . . . . . . . . . . . . . . . . . . . . . 77 73 221 222
Other . . . . . . . . . . . . . . . . . . . . . . . . . 570 549 1,655 1,543
------------- ------------- ------------- -------------
Total noninterest expense . . . . . . . . . . . . . 3,921 3,546 11,468 11,037
------------- ------------- ------------- -------------
Income before federal tax expense . . . . . . . . . . . . . 1,329 1,575 4,120 4,661
Provision for tax expense . . . . . . . . . . . . . . . . . 322 441 1,037 1,317
------------- ------------- ------------- -------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,007 $ 1,134 $ 3,083 $ 3,344
============= ============= ============= =============
Earnings Per Share
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ .31 $ .35 $ .94 $ 1.03
============= ============= ============= =============
</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
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,083 $ 3,344
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,662 1,119
Accretion of discount and loan fees . . . . . . . . . . . . . . . . . . . . . (601) (623)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 350 (300)
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . . . . 329 44
(Increase) decrease in other receivables and prepaids . . . . . . . . . . . . (220) 862
(Increase) decrease in deferred tax asset . . . . . . . . . . . . . . . . . . (162) 284
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 32 74
(Gain) on sales of securities available for sale . . . . . . . . . . . . . . (135) (244)
(Gain) on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (10)
(Gain) on sales of other real estate owned . . . . . . . . . . . . . . . . . (20)
Increase (decrease) in other payables . . . . . . . . . . . . . . . . . . . . (3,185) 894
Net decrease in student loans held for resale . . . . . . . . . . . . . . . . 117
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 1,147 5,541
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale . . . . . . . 15,780 28,940
Proceeds from sales of mortgage-backed securities available for sale . . . . . 18,991 13,118
Proceeds from maturities of investment securities available for sale . . . . . 28,890 11,457
Proceeds from maturities of mortgage-backed securities available for sale . . 13,070 4,490
Proceeds from maturities of investment securities held to maturity . . . . . . 872 13,393
Proceeds from maturities of mortgage-backed securities held to maturity . . . 7,075 4,095
Purchases of investment securities available for sale . . . . . . . . . . . . (27,772) (37,233)
Purchases of mortgage-backed securities available for sale . . . . . . . . . . (47,779) (23,397)
Purchases of marketable equity securities available for sale . . . . . . . . . (81) (107)
Net (increase) in federal funds sold . . . . . . . . . . . . . . . . . . . . . (2,875)
Net (increase) in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,491) (14,916)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . (2,249) (2,463)
Proceeds from sales of premises and equipment . . . . . . . . . . . . . . . . 25 42
Proceeds from sales of repossessed assets . . . . . . . . . . . . . . . . . . 913 820
Proceeds from sales of other real estate owned . . . . . . . . . . . . . . . . 145
------------ ------------
Net cash provided (used) in investing activities . . . . . . . . . . . . . (13,756) (4,491)
</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
----------------------------
1996 1995
------------ -------------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings accounts . . . . . . . . . . . . $ 2,610 $ (11,655)
Net increase in certificates of deposit . . . . . . . . . . . . . . . . . . . 18,334 6,463
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . (2,525) 550
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (418) (267)
Sale of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Loss on sale of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (36)
Net increase (decrease) in notes payable . . . . . . . . . . . . . . . . . . . (4,206) 1,913
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . 189 147
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (772) (585)
------------ -------------
Net cash provided (used) by financing activities . . . . . . . . . . . . 13,309 (3,434)
------------ -------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 700 (2,384)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 26,321 25,381
------------ -------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 27,021 $ 22,997
============ =============
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,674 $ 9,329
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,255 $ 990
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and repossessed assets through foreclosure . . . . . . . . $ 896 $ 807
</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 . . . . . . . . . . . . . . . 3,344 3,344
Cash dividend ($.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
========== ========= ========= ========= ========== ============
Balance at December 31, 1995 . . . . . . $ 7,853 $ 16,209 $ 9,123 $ (486) $ 653 $ 33,352
Net Income . . . . . . . . . . . . . . . 3,083 3,083
Cash dividend ($.25 per share) . . . . . (772) (772)
Common stock issued (12,375 shares) . . . 31 158 189
Stock dividend . . . . . . . . . . . . . 388 2,017 (2,405)
Purchase of 27,215 shares of
Treasury stock . . . . . . . . . . . . . (418) (418)
Sale of 14,083 shares of
Treasury stock . . . . . . . . . . . . . (36) 133 97
Net unrealized (losses) on securities
available for sale (net of tax) . . . . (695) (695)
---------- --------- --------- --------- ---------- ------------
Balance at September 30, 1996 . . . . . . $ 8,272 $ 18,384 $ 8,993 $ (771) $ (42) $ 34,836
========== ========= ========= ========= ========== ============
</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, 1996, and the related
consolidated statements of income, shareholders' equity and cash flow for the
nine month periods ended September 30, 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 September 30, 1996 and 1995, the number of
shares used to calculate earnings per share was 3,271,016 and 3,250,921
respectively, adjusted for the dilutive effect of stock options.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter and nine months ended September
30, 1996 compared to September 30, 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 a decrease in net income for the quarter and nine months
ended September 30, 1996 compared to the same period in 1995. Net income for
the quarter and nine months ended September 30, 1996 was $1,007,000 and
$3,083,000, as compared to $1,134,000 and $3,344,000 for the same period in
1995.
Net Interest Income
Net interest income for the quarter and nine months ended September 30, 1996
was $4,398,000 and $12,894,000, an increase of $174,000 and $403,000 or 4.1%
and 3.2%, respectively, when compared to the same periods in 1995. Average
interest earning assets increased $33,741,000 or 8.9%, while the net interest
spread decreased from 3.6% to 3.3% from September 30, 1995 to September 30,
1996.
During the nine months ended September 30, 1996, Average Loans, funded
primarily by the growth in average deposits and average FHLB advances,
increased $35,807,000 or 17.5%, compared to the same period in 1995. The
average yield on loans decreased from 9.0% at September 30, 1995 to 8.8% at
September 30, 1996.
Average Securities increased $4,762,000 or 2.9% for the nine months ended
September 30, 1996 when compared to the same period in 1995. The overall
yield on Average Securities decreased to 6.0% during the nine months ended
September 30, 1996, from 6.1% during the same period in 1995.
Interest income from federal funds and other interest earning assets
decreased $322,000 or 59.9% for the nine months ended September 30, 1996 when
compared to 1995 primarily as a result of the average balance decrease of
56.3%. The average yield decreased from 5.9% at September 30, 1995 to 5.4%
at September 30, 1996.
Total interest expense increased $1,304,000 or 13.9% to $10,706,000 during
the nine months ended September 30, 1996 as compared to $9,402,000 during the
same period in 1995. The increase was attributable to an increase in Average
Interest Bearing Liabilities of $23,660,000 or 7.7% and an increase in the
average yield on interest bearing liabilities from 4.1% at September 30, 1995
to 4.3% at September 30, 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)
Nine Months Ended September 30, 1996 Nine Months Ended September 30, 1995
------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 240,527 $ 15,786 8.8% $ 204,720 $ 13,854 9.0%
Investment Securities 64,360 2,621 5.4% 76,932 3,342 5.8%
Mortgage-backed Securities 104,418 4,977 6.4% 87,084 4,159 6.4%
Other Interest Earning
Assets 5,299 216 5.4% 12,127 538 5.9%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS $ 414,604 $ 23,600 7.6% $ 380,863 $ 21,893 7.7%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 314,186 $ 10,061 4.3% $ 296,890 $ 9,052 4.1%
Fed Funds Purchased and
Other Interest Bearing
Liabilities 2,924 108 4.9% 1,746 67 5.1%
Long Term Interest Bearing
Liabilities - FHLB Dallas 12,945 537 5.5% 7,759 283 4.9%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES $ 330,055 $ 10,706 4.3% $ 306,395 $ 9,402 4.1%
========== ========= --- ========== ========== ---
NET INTEREST SPREAD 3.3% 3.6%
==== ===
</TABLE>
Noninterest Income
Noninterest income was $3,044,000 for the nine months ended September 30, 1996
compared to $2,907,000 for the same period in 1995. Other noninterest income
increased $239,000 for the nine months ended September 30, 1996 primarily as a
result of increases in trust income, credit life commissions and mortgage
servicing release fees. Gains on sales of securities decreased $109,000 for
the nine months ended September 30, 1996 compared to the same period in 1995.
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 September 30, 1996 was
$168,102,000 with a net unrealized gain on that date of $337,000. The net
unrealized gain is comprised of $1,138,000 in unrealized gains and $801,000 in
unrealized losses.
8
<PAGE> 10
Noninterest Expense
Noninterest expense was $11,468,000 for the nine months ended September 30,
1996, compared to $11,037,000 for the same period of 1995, representing an
increase of $431,000 or 3.9% for the period.
Salaries and employee benefits increased $613,000 or 9.4% during the nine
months ended September 30, 1996 when compared to the same period in 1995.
Increased direct salary expense including payroll taxes represented $480,000 of
the increase while higher retirement and health insurance expense accounted for
the remainder of the change. A portion of this increase is due to staffing
requirements for the new branches opened and opening during 1996.
FDIC insurance decreased $397,000 or 99.7% for the nine months ended September
30, 1996 compared to the same period of 1995. During August 1995, the FDIC
announced a decrease in the insurance premiums from 23 cents per hundred dollar
of deposits insured to 4 cents per hundred dollar insured effective June 1,
1995. As a result, Southside Bank received a refund of $230,000 in September
1995. 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. Congress recently passed legislation which will increase
FDIC insurance expense in 1997 to pay for a portion of the Savings & Loan
bailout. This expense is anticipated to be 1.29 cents per hundred dollar of
deposits.
Other expense was $1,655,000 for the nine months ended September 30, 1996, an
increase of $112,000 or 7.3% when compared to the same period in 1995. Costs
associated with growth in the mortgage and indirect auto lending portfolios
contributed to the increase.
Provision for Income Taxes
The provision for tax expense ratio for the nine months ended September 30,
1996 was 25.2% compared to 28.3% for the nine months ended September 30, 1995.
The reduction is due to an increase in average tax free municipal securities
and lower pre-tax income when comparing the two periods.
Capital Resources
Total shareholders' equity for the Company at September 30, 1996, of
$34,836,000 was up $1,484,000 from December 31, 1995, and represented 7.6% and
7.4% of total assets at September 30, 1996 and December 31, 1995, respectively.
Increases to shareholders' equity during the nine months ended September 30,
1996 were net income of $3,083,000, common stock (12,375 shares) issued through
dividend reinvestment of $189,000 and an increase of $97,000 due to the sale of
14,083 shares of treasury stock. Decreases to shareholders' equity consisted
of $695,000 in net unrealized losses on securities available for sale, $772,000
in dividends paid to shareholders and the purchase of 27,215 shares of treasury
stock for $418,000.
The Federal Reserve Board has risk-based capital guidelines for bank holding
companies. As of September 30, 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
9
<PAGE> 11
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, 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 September 30, 1996, these investments
were 18.4% 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 significant amounts of 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
$35,807,000 or 17.5% from the nine months ended September 30, 1995 to September
30, 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 third quarter and nine months ended September 30, 1996, loan
charge-offs were $211,000 and $581,000 and recoveries were $44,000 and
$210,000, respectively, resulting in net charge-offs of $167,000 and $371,000.
Consumer charge-offs and bankruptcies have increased due to layoffs in the
Smith County area and is consistent with the overall national trend. During
the nine months ended September 30, 1995, the Company reduced its reserve for
loan losses by $300,000. This was due to significant recoveries realized
during the nine month period and based on the Company's review of the loan loss
reserve.
10
<PAGE> 12
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.
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 judgments 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 September 30, 1996 were $3,067,000, up $666,000
or 27.7% from $2,401,000 at September 30, 1995. From September 30, 1995 to
September 30, 1996, loans 90 days past due or more increased $344,000 or 178.2%
to $537,000. The majority of these loans are secured by residential dwellings
that are primarily owner occupied. Historically, the amount of losses suffered
on this type of loan have been significantly less than those on other
properties. Nonaccrual loans increased $303,000 or 22.5% to $1,651,000.
Approximately $250,000 of this increase relates to one commercial credit
relationship. Restructured loans increased $39,000 or 11.3% to $383,000, while
repossessed assets decreased $20,000 or 8.2% to $223,000.
Expansion
Remodeling and expansion of the main bank headquarters on South Beckham began
on April 24, 1996. The Company opened a grocery store branch at Super One Food
Store in Tyler on July 31, 1996. Another grocery store branch at Brookshire's
in Tyler opened October 23, 1996. The company also plans to open a grocery
store branch in Lindale late in the fourth quarter.
11
<PAGE> 13
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
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 nine months ended September 30, 1996.
(b) Reports on Form 8-K - None
</TABLE>
12
<PAGE> 14
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: 11-12-96
------------------
/s/ LEE R. GIBSON
------------------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 11-12-96
------------------
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 27,021
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 139,283
<INVESTMENTS-CARRYING> 28,858
<INVESTMENTS-MARKET> 28,819
<LOANS> 249,002
<ALLOWANCE> 3,296
<TOTAL-ASSETS> 461,217
<DEPOSITS> 409,252
<SHORT-TERM> 2,075
<LIABILITIES-OTHER> 5,574
<LONG-TERM> 9,480
0
0
<COMMON> 8,272
<OTHER-SE> 26,564
<TOTAL-LIABILITIES-AND-EQUITY> 461,217
<INTEREST-LOAN> 15,786
<INTEREST-INVEST> 7,598
<INTEREST-OTHER> 216
<INTEREST-TOTAL> 23,600
<INTEREST-DEPOSIT> 10,061
<INTEREST-EXPENSE> 10,706
<INTEREST-INCOME-NET> 12,894
<LOAN-LOSSES> 350
<SECURITIES-GAINS> 135
<EXPENSE-OTHER> 11,468
<INCOME-PRETAX> 4,120
<INCOME-PRE-EXTRAORDINARY> 4,120
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,083
<EPS-PRIMARY> .94
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.15
<LOANS-NON> 1,651
<LOANS-PAST> 537
<LOANS-TROUBLED> 383
<LOANS-PROBLEM> 621
<ALLOWANCE-OPEN> 3,317
<CHARGE-OFFS> 581
<RECOVERIES> 210
<ALLOWANCE-CLOSE> 3,296
<ALLOWANCE-DOMESTIC> 3,296
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 71
</TABLE>
