<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, 1997
------------------------------------------
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 (Zip Code)
offices)
(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 3,489,252 shares of
Common Stock, par value $2.50, outstanding at October 27, 1997.
<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,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,723 $ 31,653
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,563 56,091
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932 1,734
------------ -----------
Total Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,495 57,825
Mortgage-backed and related securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,967 90,574
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,136 23,782
------------ -----------
Total Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,103 114,356
Marketable equity securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,304 2,220
Loans:
Loans, net of unearned discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,794 258,167
Less: Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,348) (3,249)
------------ -----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,446 254,918
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,405 13,695
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 273
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,359 3,300
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 464
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,764 3,990
------------ -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 527,364 $ 482,694
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,840 $ 98,901
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,474 327,049
------------ -----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,314 425,950
Short-term obligations:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,668 4,800
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Long-term obligations:
Note payable - FHLB Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,997 9,096
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,046 6,244
------------ -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,025 446,090
------------ -----------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,489,252 and 3,316,127 shares issued and outstanding) . . . . . . . . . . . . . . . 8,723 8,290
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,182 18,501
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,497 9,628
Treasury stock (105,799 and 62,986 shares at cost) . . . . . . . . . . . . . . . . . . . (1,626) (777)
Net unrealized gains on securities available for sale . . . . . . . . . . . . . . . . . 1,563 962
------------ -----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,339 36,604
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . $ 527,364 $ 482,694
============ ===========
</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,
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income
Loans ............................................................... $ 6,138 $ 5,455 $17,497 $15,786
Investment securities ............................................... 745 827 2,576 2,621
Mortgage-backed and related securities .............................. 1,911 1,711 5,602 4,977
Other interest earning assets ....................................... 104 64 214 216
------- ------- ------- -------
Total interest income ........................................... 8,898 8,057 25,889 23,600
Interest expense
Time and savings deposits ........................................... 3,795 3,457 10,899 10,061
Short-term obligations .............................................. 283 29 570 108
Long-term obligations ............................................... 61 173 370 537
------- ------- ------- -------
Total interest expense .......................................... 4,139 3,659 11,839 10,706
------- ------- ------- -------
Net interest income .................................................... 4,759 4,398 14,050 12,894
Provision for loan losses .............................................. 250 150 650 350
------- ------- ------- -------
Net interest income after provision for loan losses .................... 4,509 4,248 13,400 12,544
------- ------- ------- -------
Noninterest income
Deposit services .................................................... 1,193 702 2,817 2,061
Gains (losses) on securities available for sale ..................... 9 (2) 161 135
Other ............................................................... 354 302 975 848
------- ------- ------- -------
Total noninterest income ........................................ 1,556 1,002 3,953 3,044
------- ------- ------- -------
Noninterest expense
Salaries and employee benefits ...................................... 2,432 2,399 7,514 7,100
Net occupancy expense ............................................... 532 459 1,529 1,287
Equipment expense ................................................... 108 83 309 229
Advertising, travel & entertainment ................................. 226 221 711 644
Supplies ............................................................ 109 112 313 331
FDIC insurance ...................................................... 13 38 1
Postage ............................................................. 86 77 246 221
Other ............................................................... 732 570 1,887 1,655
------- ------- ------- -------
Total noninterest expense ....................................... 4,238 3,921 12,547 11,468
------- ------- ------- -------
Income before federal tax expense ...................................... 1,827 1,329 4,806 4,120
Provision for tax expense .............................................. 478 322 1,224 1,037
------- ------- ------- -------
Net Income ............................................................. $ 1,349 $ 1,007 $ 3,582 $ 3,083
======= ======= ======= =======
Earnings Per Share
Net Income ............................................................. $ .39 $ .29 $ 1.04 $ .90
======= ======= ======= =======
</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,
------------------
1997 1996
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................. $ 3,582 $ 3,083
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization ............................................. 1,937 1,662
Accretion of discount and loan fees ....................................... (638) (601)
Provision for loan losses ................................................. 650 350
(Increase) decrease in interest receivable ................................ (59) 329
Decrease (increase) in other receivables and prepaids ..................... 1,076 (220)
(Increase) in deferred tax asset .......................................... (203) (162)
Increase in interest payable .............................................. 256 32
(Gain) on sales of securities available for sale .......................... (161) (135)
(Gain) on sale of assets .................................................. (12) (6)
Increase (decrease) in other payables ...................................... 6,546 (3,185)
------- -------
Net cash provided by operating activities ............................... 12,974 1,147
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale ............ 24,987 15,780
Proceeds from sales of mortgage-backed securities available for sale ....... 31,542 18,991
Proceeds from maturities of investment securities available for sale ....... 14,481 28,890
Proceeds from maturities of mortgage-backed securities available for sale .. 22,517 13,070
Proceeds from maturities of investment securities held to maturity ......... 809 872
Proceeds from maturities of mortgage-backed securities held to maturity .... 7,720 7,075
Purchases of investment securities available for sale ...................... (37,381) (27,772)
Purchases of mortgage-backed securities available for sale ................. (77,424) (47,779)
Purchases of marketable equity securities available for sale ............... (84) (81)
Net (increase) in loans .................................................... (30,993) (21,491)
Purchases of premises and equipment ........................................ (4,612) (2,249)
Proceeds from sales of premises and equipment .............................. 17 25
Proceeds from sales of repossessed assets .................................. 777 913
Proceeds from sales of other real estate owned ............................. 98
------- -------
Net cash (used) in investing activities ................................. (47,546) (13,756)
</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,
------------------
1997 1996
-------- -------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in demand and savings accounts ............................... $ 7,323 $ 2,610
Net increase in certificates of deposit ................................... 11,041 18,334
Net increase (decrease) in federal funds purchased ........................ 1,868 (2,525)
Purchase of treasury stock ................................................ (960) (418)
Proceeds from sale of treasury stock ...................................... 77 97
Net increase (decrease) in notes payable .................................. 14,901 (4,206)
Proceeds from the issuance of common stock ................................ 201 189
Dividends paid ............................................................ (809) (772)
------- -------
Net cash provided by financing activities ............................ 33,642 13,309
------- -------
Net (decrease) increase in cash and cash equivalents ....................... (930) 700
Cash and cash equivalents at beginning of period ........................... 31,653 26,321
------- -------
Cash and cash equivalents at end of period ................................. $30,723 $27,021
======= =======
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid ............................................................. $11,677 $10,674
Income taxes paid ......................................................... $ 1,500 $ 1,255
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and other repossessed assets through foreclosure ...... $ 815 $ 896
</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, 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
======== ========= ========= ========== ========== ============
Balance at December 31, 1996 . . . . . . $ 8,290 $ 18,501 $ 9,628 $ (777) $ 962 $ 36,604
Net Income . . . . . . . . . . . . . . . 3,582 3,582
Cash dividend ($.25 per share) . . . . . (809) (809)
Common stock issued (11,413 shares) . . . 29 172 201
Stock dividend . . . . . . . . . . . . . 404 2,466 (2,870)
Purchase of 54,513 shares of
Treasury stock . . . . . . . . . . . . . (960) (960)
Sale of 11,700 shares of
Treasury stock . . . . . . . . . . . . . (34) 111 77
Net unrealized gains on securities
available for sale (net of tax) . . . . 601 601
FAS109-Incentive Stock Options . . . . . 43 43
-------- --------- --------- ---------- ---------- ------------
Balance at September 30, 1997 . . . . . . $ 8,723 $ 21,182 $ 9,497 $ (1,626) $ 1,563 $ 39,339
======== ========= ========= ========== ========== ============
</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, 1997, and the related
consolidated statements of income, shareholders' equity and cash flow for the
nine month periods ended September 30, 1997 and 1996 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, 1997 and 1996, the number of
shares used to calculate earnings per share was 3,443,531 and 3,434,210
respectively, adjusted for the dilutive effect of stock options.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128).
This statement, which the Company is required to adopt in December 1997,
supersedes APB 15, "Earnings Per Share" and simplifies the computation of
earnings per share (EPS) by replacing the "primary" EPS requirements of APB
15 with a "basic" EPS computation based upon weighted-average shares
outstanding. The new standard requires a dual presentation of basic and
diluted EPS. Diluted EPS is similar to fully diluted EPS required under APB
15 for entities with complex capital structures. As of September 30, 1997,
the adoption of FAS 128 did not have a material impact on the Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It requires
(a) classification of items of other comprehensive income by their nature in
financial statements and (b) display of the accumulated balance of other
comprehensive income separate from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The
Company plans to adopt FAS 130 for the quarter ending March 31, 1998.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter and nine months ended September
30, 1997 compared to September 30, 1996.
The following is a discussion of the consolidated financial condition,
changes in financial condition, and results of operations of Southside
Bancshares, Inc. (the "Company"), and should be read and reviewed in
conjunction with the financial statements, and the notes thereto, in this
presentation and in the Company's latest report on Form 10-K.
The Company reported an increase in net income for the quarter and nine
months ended September 30, 1997 compared to the same period in 1996. Net
income for the quarter and nine months ended September 30, 1997 was
$1,349,000 and $3,582,000, as compared to $1,007,000 and $3,083,000 for the
same period in 1996.
Net Interest Income
Net interest income for the quarter and nine months ended September 30, 1997
was $4,759,000 and $14,050,000, an increase of $361,000 and $1,156,000 or
8.2% and 9.0%, respectively, when compared to the same periods in 1996.
Average interest earning assets increased $38,150,000 or 9.2%, while the net
interest spread remained unchanged at 3.5% at September 30, 1997.
During the nine months ended September 30, 1997, Average Loans, funded
primarily by the growth in average deposits, increased $28,857,000 or 12.0%,
compared to the same period in 1996. The average yield on loans decreased
slightly from 8.8% at September 30, 1996 to 8.7% at September 30, 1997.
Average Securities increased $9,424,000 or 5.6% for the nine months ended
September 30, 1997 when compared to the same period in 1996. The overall
yield on Average Securities increased to 6.7% during the nine months ended
September 30, 1997, from 6.6% during the same period in 1996.
Total interest expense increased $1,133,000 or 10.6% to $11,839,000 during
the nine months ended September 30, 1997 as compared to $10,706,000 during
the same period in 1996. The increase was attributable to an increase in
Average Interest Bearing Liabilities of $30,270,000 or 9.2% and an increase
in the average yield on interest bearing liabilities from 4.3% at September
30, 1996 to 4.4% at September 30, 1997.
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, 1997 Nine Months Ended September 30, 1996
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 269,384 $ 17,497 8.7% $ 240,527 $ 15,786 8.8%
Investment Securities(1) 61,751 3,278 7.1% 64,360 3,301 6.9%
Mortgage-backed Securities 116,451 5,602 6.4% 104,418 4,977 6.4%
Other Interest Earning
Assets 5,168 214 5.5% 5,299 216 5.4%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS $ 452,754 $ 26,591 7.9% $ 414,604 $ 24,280 7.8%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 337,856 $ 10,899 4.3% $ 314,186 $ 10,061 4.3%
Fed Funds Purchased and
Other Interest Bearing
Liabilities 13,990 570 5.4% 2,924 108 4.9%
Long Term Interest Bearing
Liabilities - FHLB Dallas 8,479 370 5.8% 12,945 537 5.5%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES $ 360,325 $ 11,839 4.4% $ 330,055 $ 10,706 4.3%
========== ========= ----- ========== ========== -----
NET INTEREST SPREAD 3.5% 3.5%
===== =====
(1) Interest income includes taxable-equivalent adjustments of $702 and $680
as of September 30, 1997 and 1996, respectively.
</TABLE>
Noninterest Income
Noninterest income was $3,953,000 for the nine months ended September 30, 1997
compared to $3,044,000 for the same period in 1996. Deposit services income
increased $756,000 or 36.7% for the nine months ended September 30, 1997 when
compared to the same period in 1996. The increase was primarily attributable
to an increase in overdraft and return check fee income as a result of an
overdraft privilege program fully introduced during the third quarter of 1997
and overall bank deposit growth. Other noninterest income increased $127,000
or 15.0% for the nine months ended September 30, 1997 primarily as a result of
increases in mortgage servicing release fees received. Gains on sales of
securities increased $26,000 for the nine months ended September 30, 1997
compared to the same period in 1996. 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, 1997 was
$187,944,000 with a net unrealized gain on that date of $2,629,000. The net
unrealized gain is comprised of $2,828,000 in unrealized gains and $199,000 in
unrealized losses.
8
<PAGE> 10
Noninterest Expense
Noninterest expense was $12,547,000 for the nine months ended September 30,
1997, compared to $11,468,000 for the same period of 1996, representing an
increase of $1,079,000 or 9.4% for the period.
Salaries and employee benefits increased $414,000 or 5.8% during the nine
months ended September 30, 1997 when compared to the same period in 1996.
Increased direct salary expense including payroll taxes of $630,000 was offset
by lower retirement expense for the nine months ended September 30, 1997 when
compared to the same period in 1996.
FDIC insurance increased $37,000 for the nine months ended September 30, 1997
compared to the same period of 1996. Future FDIC insurance assessments will be
determined by the FDIC based on the funding status of the Bank Insurance Fund.
During 1996, Congress passed legislation which increased FDIC insurance expense
in 1997 to pay for a portion of the Savings & Loan bailout.
Net occupancy increased $242,000 or 18.8% for the nine months ended September
30, 1997 compared to the same period in 1996. Net occupancy expense increased
as a direct result of the opening of three new grocery store branches in the
second half of 1996 and expansion of other branch facilities.
Other expense increased $232,000 or 14.0% for the nine months ended September
30, 1997 when compared to the same period in 1996. Professional fees increased
$114,000 or 96.5% as a result of the Company outsourcing portions of the
compliance, internal audit and computer programming functions. Other increases
occurred in overdraft losses, up $55,000, which was more than offset by the
increase in overdraft fees. In addition, telephone expense was up $32,000, due
to the addition of new branches in 1996.
Provision for Income Taxes
The provision for tax expense ratio for the nine months ended September 30,
1997 was 25.5% compared to 25.2% for the nine months ended September 30, 1996.
The increase is due to an increase in higher pre-tax income when comparing the
two periods.
Capital Resources
Total shareholders' equity for the Company at September 30, 1997, of
$39,339,000 was up $2,735,000 from December 31, 1996, and represented 7.5% and
7.6% of total assets at September 30, 1997 and December 31, 1996, respectively.
Increases to shareholders' equity during the nine months ended September 30,
1997 were net income of $3,582,000, common stock (11,413 shares) issued through
dividend reinvestment of $201,000, an increase of $77,000 due to the sale of
11,700 shares of treasury stock and an increase of $601,000 in net unrealized
gains on securities available for sale. Decreases to shareholders' equity
consisted of $809,000 in dividends paid to shareholders and the purchase of
54,513 shares of treasury stock for $960,000.
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as standby letters of credit)
is currently eight percent. The minimum Tier 1 capital to risk-adjusted assets
is four percent. The Federal Reserve Board also requires bank holding
companies to comply with the minimum leverage ratio guidelines. The leverage
ratio is a ratio of bank holding company's Tier 1 capital to its total
consolidated quarterly average assets, less goodwill and certain other
intangible assets. The guidelines require a minimum average of three percent
for bank holding companies that meet certain specified criteria. Failure to
meet minimum capital regulations can initiate certain mandatory and possibly
additional discretionary actions by regulation, that if undertaken, could have
a direct material effect on the Bank's financial statements. At September 30,
1997, the Company and Southside Bank exceeded all regulatory minimum capital
requirements.
9
<PAGE> 11
The Federal Reserve Deposit Insurance Act requires bank regulatory agencies to
take "prompt corrective action" with respect to FDIC-insured depository
institutions that do not meet minimum capital requirements. A depository
institution's treatment for purposes of the prompt corrective action provisions
will depend on how its capital levels compare to various capital measures and
certain other factors, as established by regulation.
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, 1997, these investments
were 15.2% 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
$28,857,000 or 12.0% from the nine months ended September 30, 1996 to September
30, 1997. The majority of the increase is in Real Estate Loans and Commercial
Loans. The increase in Real Estate Loans is due to a stronger real estate
market, interest rates and an increased commitment in residential mortgage
lending. Commercial Loans increased as a result of commercial growth in the
Company's market area.
Loan Loss Experience and Reserve for Loan Losses
For the third quarter and nine months ended September 30, 1997, loan
charge-offs were $369,000 and $783,000 and recoveries were $90,000 and
$232,000, respectively, resulting in net charge-offs of $279,000 and $551,000.
For the third quarter and nine months ended September 30, 1996, net charge-offs
were $167,000 and $371,000, respectively.
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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.
Other Real Estate Owned (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, 1997 were $3,928,000, up $861,000 or
28.1% from $3,067,000 at September 30, 1996. The increase is primarily due to
two commercial and agricultural loans. Consumer bankruptcies and significant
loan growth over the last few years are also factors of this increase. To the
best of management's knowledge, reserves have already been set aside to cover
potential losses in these credits. Based on current economic data, consumer
bankruptcies should remain at current levels. From September 30, 1996 to
September 30, 1997, loans 90 days past due or more increased $420,000 or 78.2%
to $957,000. OREO increased $91,000 or 33.3% from September 30, 1997 to
September 30, 1996. Nonaccrual loans increased $411,000 or 24.9% to $2,062,000.
Restructured loans increased $51,000 or 13.3% to $434,000, while repossessed
assets decreased $112,000 or 50.2% to $111,000.
Expansion
The Company purchased the Gentry Parkway facility that was previously being
leased. The Company plans to remodel and occupy the entire facility.
Remodeling and expansion of the main bank headquarters on South Beckham was
completed during the third quarter of 1997.
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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.
-------
3 - Bylaws as amended.
27 - Financial Data Schedule for the nine months
ended September 30, 1997.
(b) Reports on Form 8-K - None
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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: 11-13-97
----------------
/s/ LEE R. GIBSON
-----------------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 11-13-97
----------------
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EXHIBIT INDEX
Exhibit No Description
- ---------- -----------
3 Bylaws as amended.
27 Financial Data Schedule for the nine
months ended September 30, 1997
<PAGE> 1
AMENDED AND RESTATED BYLAWS OF
SOUTHSIDE BANCSHARES, INC.
ARTICLE I.
OFFICES
1.01 Principal Office Address. The principal office and place of business
of the Corporation shall be located in the City of Tyler, Smith County, Texas.
1.02 Other Offices. The Corporation may also have offices at such other
places both within and without the State of Texas as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II.
SHAREHOLDERS' MEETINGS
2.01 Place of Meetings. Meetings of the shareholders shall be held at the
principal business office of the Corporation or at any other place (within or
without the State of Texas) as the Board of Directors or shareholders may from
time to time select.
2.02 Annual Meeting. The annual meeting of shareholders for the election of
Directors and such other business as may properly be brought before the meeting
shall be held at a date and time designated by the Board of Directors and stated
in the notice of the meeting or in a duly executed waiver of notice. If the
annual meeting is not held on this date, by oversight or otherwise, it shall be
held as soon thereafter as may be convenient, and any business transacted or
elections held at such delayed meeting shall be as valid as if the meeting had
been held on the date provided. If the day selected is a legal holiday, then the
meeting shall be held on the next
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business day following. Failure to hold any annual meeting shall not work a
dissolution of the Corporation.
2.03 Special Meetings. Special meetings of the shareholders for any purpose
or purposes may be called by the President, and shall be called by the President
or Secretary at the request in writing of a majority of the Board of Directors,
or at the request in writing of shareholders owning not less than 10% of all the
shares entitled to vote at the meetings. A request for a special meeting shall
state the purpose or purposes of the proposed meeting, which purpose or purposes
shall be stated in the notice of the meeting. Business transacted at any special
meeting of shareholders shall be limited to the purposes stated in the notice.
2.04 Notice. Written notice stating the place, day and hour of a
shareholders' meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than fifty days before the date of the meeting, by or at the direction
of the President, the Secretary, or the officer or persons calling the meeting,
to each shareholder of record entitled to vote at such meeting.
Attendance at a meeting shall constitute a waiver of notice, except where
the person attends for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called.
2.05 Quorum. The holders of a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. The vote of the holders of a majority of shares entitled to vote
and thus represented at a meeting at which a quorum is present shall be the act
of the shareholders' meeting, unless the vote of a greater or lesser number is
required by law, the Articles of Incorporation or these Bylaws. If a quorum is
not present or represented at a meeting of shareholders, the holders of a
majority of the shares
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present or represented and entitled to vote, shall have the power to adjourn,
without notice other than announcement at the meeting, until a quorum is present
or represented. At an adjourned meeting at which a quorum is present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
2.06 Method of Voting. Each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at the meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation. A
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable.
2.07 Record Date. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend, the Board of Directors may in
advance establish a record date which must be at least ten (10) but not more
than fifty (50) days prior to such meeting. If the Board of Directors fails to
establish a record date, the record date shall be the date on which notice of
the meeting is mailed.
2.08 Voting List. (a) The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of 10 days prior to such meeting, shall be kept on file
at the registered office of the Corporation and shall be subject to inspection
by any shareholder at any time during usual
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business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original stock transfer book shall be
prima-facie evidence as to which shareholders are entitled to examine such list
or transfer books or to vote at any meeting of shareholders.
(b) Failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
(c) An officer or agent having charge of the stock transfer books who shall
fail to prepare the list of shareholders or keep the same on file for a period
of 10 days, or produce and keep it open for inspection as provided in this
section, shall be liable to any shareholder suffering damage on account of such
failure, to the extent of such damage. In the event that such officer or agent
does not receive notice of a meeting of shareholders sufficiently in advance of
the date of such meeting reasonably to enable him to comply with the duties
prescribed by these Bylaws, the Corporation, but not such officer or agent,
shall be liable to any shareholder suffering damage on account of such failure,
to the extent of such damage.
ARTICLE III.
DIRECTORS
3.01 Powers. The property, business and affairs of the Corporation and all
corporate powers shall be managed by the Board of Directors, subject to any
limitation imposed by statute, the Articles of Incorporation or these Bylaws.
3.02 Number and Term of Directors. The number of Directors shall be set at
nine (9), but the number of Directors may be increased or decreased (provided
such decrease does not shorten the term of any incumbent Director) from time to
time by amendment to these Bylaws, provided the number of Directors shall never
be less than three (3). The directors shall be
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<PAGE> 5
classified with respect to the time for which they severally hold office into
three (3) classes. Such classes shall be as nearly equal in number as possible
as determined by the Board of Directors. One class shall hold office initially
for a term expiring at the annual meeting of shareholders to be held in 1995
(and thereafter such class shall hold office for a three-year term expiring at
the annual meeting of shareholders), another class shall hold office initially
for a term expiring at the annual meeting of shareholders to be held in 1996
(and thereafter such class shall hold office for a three-year term expiring at
the annual meeting of shareholders), and another class shall hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 1997 (and thereafter such class shall hold office for a three-year term
expiring at the annual meeting of shareholders), with the members of each class
to hold office until their successors are elected and qualified, until his or
her death or retirement or until he or she shall resign or be removed in the
manner provided in the Bylaws. In any such event, such Director's successor
shall become a member of the same class of directors as his predecessor. Any
directorship created by reason of an increase in the number of directors in
accordance with this Section 3.02 may be filled in accordance with the
provisions of Section 3.05 of these Bylaws.
3.03 Election. Every shareholder entitled to vote shall have the right to
vote the number of voting shares owned by him for as many persons as there are
directors to be elected and for whose election he has the right to vote. No
shareholder shall be entitled to cumulate his votes in the election of
directors.
3.04 Removal of Directors. At any meeting of shareholders called expressly
for the purpose of removing a director, any director or the entire Board of
Directors may be removed, with or without cause, by a vote of the holders of a
majority of the shares then entitled to vote at any election of directors.
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<PAGE> 6
3.05 Vacancies. Any vacancy in the Board of Directors resulting from death,
resignation, removal, or other cause may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Newly created directorships
resulting from an increase in the number of directorships may be filled by the
Board of Directors, but the number of directorships so filled shall not exceed
two (2) directorships between annual or special meetings of shareholders. Any
additional director so elected shall hold office for a term which shall expire
with the term of the other directors in the class to which such director is
elected. If not so filled by the Board of Directors, any vacancy shall be filled
by the shareholders at the next annual meeting or at a special meeting called
for that purpose, in accordance with Section 2.03 of these Bylaws, to serve for
a term which shall expire with the term of the other directors in the class to
which such director is elected.
3.06 Meetings. Meetings of the Board of Directors shall be held at the
principal business office of the Corporation or at any other place (within or
without the State of Texas) as the Board of Directors may from time to time
select.
3.07 Annual Meeting. The Board of Directors shall meet each year
immediately after the annual meeting of the shareholders at the place that
meeting has been held, to elect officers and consider other business. Notice of
the annual meeting of the Board of Directors shall not be required.
3.08 Regular Meetings. Regular meetings of the Board of Directors shall be
held at such places and at such times as may be designated or determined from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
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3.09 Special Meetings. Special meetings of the Board of Directors may be
called at any time by the President or by any member of the Board. Written
notice of each special meeting, setting forth the time and place of the meeting,
shall be given to each director at least three (3) days before the meeting. This
notice may be given either personally or by mail, or by telegram, to the address
of each director appearing on the books of the Corporation, and the purpose
shall be specified.
3.10 Quorum of Directors. At all meetings of the Board of Directors a
majority of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
3.11 Presumption of Assent. A director who is present at any meeting of the
Board of Directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
3.12 Committees. The Board of Directors may from time to time designate
members of the Board to constitute committees, including an Executive Committee,
which shall in each case consist of such number of directors and shall have and
may exercise such power, as the Board may determine and specify in the
respective resolutions appointing them. A majority of all the
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<PAGE> 8
members of any such committee may determine its action and fix the time and
place of its meeting, unless the Board of Directors shall otherwise provide. The
Board of Directors shall have the power at any time to change the number,
subject as aforesaid, and members of any such committee, to fill vacancies and
to discharge any such committee.
3.13 Compensation. Directors shall receive such compensation for their
services as directors as may be determined by resolution of the Board of
Directors. The receipt of such compensation shall not preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV.
OFFICERS
4.01 Election, Number, Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall consist of a President, a
Vice-President, a Secretary and a Treasurer. The Board of Directors may also
elect a Chairman of the Board, additional Vice- Presidents, one or more
Assistant Secretaries and Assistant Treasurers and such other officers and
assistant officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall have such authority and exercise such powers
and perform such duties as shall be determined from time to time by the Board by
resolution not inconsistent with these Bylaws. Two or more offices may be held
by the same person, except that the offices of President and Secretary may not
be held by the same person. None of the officers need be directors.
4.02 Terms of Offices; Removal. The officers of the Corporation shall hold
office until the next annual meeting of the Board of Directors and until their
successors are elected or appointed and qualify, or until their death or until
their resignation or removal from office. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board
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<PAGE> 9
whenever in its judgment the best interests of the Corporation will be served
thereby. Such removal shall be without prejudice to the contract rights, if any,
of the person so removed. Election or appointment of an officer shall not of
itself create contract rights.
4.03 Vacancies. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by the Board of
Directors.
4.04 Authority and Compensation. Officers and agents shall have such
authority and perform such duties in the management of the Corporation as are
provided in these Bylaws or as may be determined by the Board of Directors. The
compensation of officers and agents shall be as fixed from time to time by the
Board of Directors.
4.05 Chairman of the Board. The Chairman of the Board, if one is elected,
shall preside at all meetings of the Board of Directors and shall have such
other powers and duties as may from time to time be prescribed by the Board of
Directors upon written directions given to him pursuant to resolutions duly
adopted by the Board of Directors.
4.06 President. The President shall be the chief executive officer of the
Corporation, shall have general and active management of the business and
affairs of the Corporation, and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall preside at all meetings of
the shareholders and at all meetings of the Board of Directors, unless a
Chairman of the Board has been elected, in which event the President shall
preside at meetings of the Board of Directors in the absence or disability of
the Chairman of the Board.
4.07 Vice-President. The Vice-Presidents, in the order of their seniority,
unless otherwise determined by the Board of Directors, shall, in the absence or
disability of the President, perform the duties and have the authority and
exercise the powers of the President.
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They shall perform such other duties and have such other authority and powers as
the Board of Directors may from time to time prescribe or as the President may
from time to time delegate.
4.08 Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of shareholders and record all of the proceedings of
the meetings of the Board of Directors and of the shareholders in a minute book
to be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors.
He shall keep in safe custody the seal, if any, of the Corporation and, when
authorized by the Board of Directors, shall affix the same to any instrument
requiring it and, when so affixed, it may be attested by his signature or by the
signature of an Assistant Secretary or of the Treasurer.
4.09 Treasurer. (a) The Treasurer shall have custody of the corporate funds
and securities and shall keep full and accurate accounts and records of
receipts, disbursements and other transactions in books belonging to the
Corporation, and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors.
(b) The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render the President and the Board of Directors, at its
regular meetings, or when the President or Board of Directors so require, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation.
(c) If required by the Board of Directors, the Treasurer shall give the
Corporation a bond of such type, character and amount as the Board of Directors
may require.
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4.10 Assistant Secretary and Assistant Treasurer. In the absence of the
Secretary or Treasurer, an Assistant Secretary or Assistant Treasurer,
respectively, shall perform the duties of the Secretary or Treasurer. Assistant
Treasurers may be required to give bond as in 4.09(c). The Assistant Secretaries
and Assistant Treasurers, in general, shall have such powers and perform such
duties as the Treasurer or Secretary, respectively, or the Board of Directors or
President may prescribe.
ARTICLE V.
CAPITAL STOCK
5.01 Share Certificates. The shares of the Corporation shall be represented
by certificates signed by the President or a Vice-President and the Secretary or
an Assistant Secretary of the Corporation, and may be sealed with the seal of
the Corporation or a facsimile thereof. The signatures of the President or
Vice-President and the Secretary or Assistant Secretary upon a certificate may
be facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, and the par value of such shares or a statement that such shares are
without par value.
5.02 Payment, Issuance. Shares may be issued for such consideration, not
less than the par value, if any, thereof, as may be fixed from time to time by
the Board of Directors. The consideration for the payment of shares shall
consist of money paid, labor done or property actually received. Shares may not
be issued until the full amount of the consideration fixed therefor has been
paid.
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5.03 Lost, Stolen or Destroyed Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed if the
person claiming the certificate to be lost, stolen or destroyed makes an
affidavit of that fact and files with the Corporation a sufficient indemnity
bond by the person claiming the certificate to be lost, stolen or destroyed, and
when authorizing such issue of a new certificate, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, prescribe
such other terms and conditions as it deems expedient or necessary to protect
the Corporation from any claim that may be made against it with respect to any
such certificate alleged to have been lost or destroyed.
5.04 Registration of Transfers. Shares of stock shall be transferable only
on the books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender to the corporation or the Transfer Agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto and the old
certificate canceled and the transaction recorded upon the books of the
Corporation.
5.05 Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Texas.
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ARTICLE VI.
PROTECTION OF OFFICERS, DIRECTORS AND EMPLOYEES
6.01 Indemnification. (a) The Corporation shall indemnify any director or
officer or former director or officer of the Corporation, or any person who may
have served at its request as a director or officer or former director or
officer of another Corporation in which it owns shares of capital stock or of
which it is a creditor, against expenses actually and necessarily incurred by
him in connection with the defense of any action, suit, or proceeding, whether
civil or criminal, in which he is made a party by reason of being or having been
such director or officer, except in relation to matters as to which he shall be
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in performance of duty.
(b) The Corporation shall also reimburse any such director or officer or
former director or officer or any such person serving or formerly serving in the
capacities set forth in paragraph 6.01(a) at the request of the Corporation for
the reasonable cost of settlement of any such action, suit or proceeding, if it
shall be found by a majority of the directors not involved in the matter in
controversy, whether or not a quorum, that it was in the best interest of the
Corporation that such settlement be made, and that such director or officer or
former director or officer or such person was not guilty of negligence or
misconduct in performance of duty.
6.02 Expenses Advanced. The Corporation may (but shall not be required to)
pay in advance any expenses which may become subject to indemnification if the
Board of Directors authorizes the specific payment, and if the person receiving
the payment undertakes in writing to repay unless it is ultimately determined
that he is entitled to indemnification by the Corporation.
6.03 Insurance. The Corporation may (but shall not be required to) purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
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against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under these Bylaws
or the laws of the State of Texas.
6.04 Other Protection and Indemnification. The protection and
indemnification provided hereunder shall not be deemed exclusive of any other
rights to which such director or officer or former director or officer or such
person may be entitled, under any agreement, insurance policy or vote of
shareholders, or otherwise.
6.05 Interested Directors. No contract or transaction between the
Corporation and any of its directors or officers (or any firm or corporation in
which any director or officer is directly or indirectly interested) shall be
void or voidable solely because of the interest of such directors or officers in
the transaction or solely because such directors or officers are present at or
participate in the meeting of the Board of Directors which authorizes the
transaction, or solely because his or their votes are counted for such purpose,
if:
(a) The material facts as to the relationship or interest of the directors
or officers are disclosed or known to the Board of Directors, and the Board in
good faith authorized the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though less than a quorum;
(b) The material facts as to the relationship or interest of the directors
or officers are disclosed or known to the shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in good faith by vote
of the shareholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors or the
shareholders.
14
<PAGE> 15
Interested directors may be counted in determining whether a quorum is
present at a meeting of the Board of Directors at which such contract or
transaction is authorized. This section shall not invalidate any contract or
transaction which would be valid in the absence of this section.
ARTICLE VII.
GENERAL PROVISIONS
7.01 Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
7.02 Notice and Waiver of Notice. Whenever any notice is required to be
given to any shareholder or director, it shall be deemed to be sufficient if
given by mailing, postage paid, addressed to the person or persons entitled
thereto at their post office addresses appearing on the books or other records
of the corporation, and such notice shall be deemed to have been given on the
date of such mailing, but said notice shall also be deemed to be sufficient and
to have been given and received if given in any other manner or by any other
means authorized by law or provided for elsewhere in these Bylaws. A waiver or
waivers of notice, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice.
7.03 Actions Without a Meeting. Any action that may be taken at a meeting
of shareholders or directors may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the shareholders or
directors entitled to vote on the action and shall be filed with the Secretary
of the Corporation. This consent shall have the same effect as a unanimous vote
at a shareholders' or directors' meeting. Shareholders or directors may
participate in and hold a meeting by means of conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in
15
<PAGE> 16
such meeting shall constitute presence in person at such meeting, except when a
person participates for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
7.04 Seal. This Corporation is not obligated to have a seal, but one may be
obtained.
7.05 Amendment. These Bylaws may be altered, amended or repealed and new
By-Laws may be adopted by the Board of Directors, subject to repeal or change by
action of the shareholders, at any meeting of the Board of Directors at which a
quorum is present, provided notice of the proposed alteration, amendment, or
repeal is contained in the notice of the meeting.
7.06 Dividends and Reserves. (a) Subject to statute and the Articles of
Incorporation, dividends may be declared by the Board of Directors at any
regular or special meeting and may be paid in cash, in property, or in shares of
the Corporation. The declaration and payment shall be at the discretion of the
Board of Directors.
(b) The Board of Directors may fix in advance a record date for the purpose
of determining shareholders entitled to receive payment of any dividend, the
record date to be not more than fifty days prior to the payment date of such
dividend, or the Board of Directors may close the stock transfer books for such
purpose for a period of not more than fifty days prior to the payment date of
such dividend. In the absence of any action by the Board of Directors, the date
upon which the Board of Directors adopts the resolution declaring the dividend
shall be the record date.
(c) By resolution the Board of Directors may create such reserve or
reserves out of the earned surplus of the Corporation for any proper purpose or
purposes and may abolish any such reserve in the same manner. Earned surplus to
the extent so reserved shall not be available for
16
<PAGE> 17
the payment of dividends or other distributions by the Corporation except as
expressly permitted by law.
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