<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
----------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
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Commission file number 0-12247
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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 3,320,654 shares of
Common Stock, par value $2.50, outstanding at April 21, 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>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks ............................................ $ 25,893 $ 31,653
Investment securities:
Available for sale .............................................. 69,402 56,091
Held to maturity ................................................ 1,063 1,734
------------ ------------
Total Investment securities ................................... 70,465 57,825
Mortgage-backed and related securities:
Available for sale .............................................. 93,666 90,574
Held to maturity ................................................ 21,059 23,782
------------ ------------
Total Mortgage-backed securities .............................. 114,725 114,356
Marketable equity securities:
Available for sale .............................................. 2,248 2,220
Loans:
Loans, net of unearned discount ................................. 262,439 258,167
Less: Reserve for loan losses .................................. (3,312) (3,249)
------------ ------------
Net Loans ..................................................... 259,127 254,918
Premises and equipment, net ........................................ 13,673 13,695
Other real estate owned, net ....................................... 273 273
Interest receivable ................................................ 3,119 3,300
Deferred tax asset ................................................. 906 464
Other assets ....................................................... 4,966 3,990
------------ ------------
TOTAL ASSETS .................................................. $ 495,395 $ 482,694
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing ............................................. $ 94,878 $ 98,901
Interest bearing ................................................ 334,490 327,049
------------ ------------
Total Deposits ................................................ 429,368 425,950
Short-term obligations:
Securities sold under agreement to repurchase ................... 8,976
Federal funds purchased ......................................... 3,250 4,800
Long-term obligations:
Note payable - FHLB Dallas ...................................... 8,721 9,096
Other liabilities .................................................. 8,728 6,244
------------ ------------
TOTAL LIABILITIES ............................................. 459,043 446,090
------------ ------------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,320,654 and 3,316,127 shares issued and outstanding) ........ 8,301 8,290
Paid-in capital ................................................. 18,604 18,501
Retained earnings ............................................... 10,381 9,628
Treasury stock (80,757 and 62,986 shares at cost) ............... (1,164) (777)
Net unrealized gains on securities available for sale ........... 230 962
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ................................... 36,352 36,604
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 495,395 $ 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>
Three Months Ended
March 31,
------------------
1997 1996
------ ------
<S> <C> <C>
Interest income
Loans ................................................... $5,543 $5,111
Investment securities ................................... 868 944
Mortgage-backed and related securities .................. 1,812 1,564
Other interest earning assets ........................... 44 71
------ ------
Total interest income ............................... 8,267 7,690
Interest expense
Time and savings deposits ............................... 3,480 3,256
Short-term obligations .................................. 124 42
Long-term obligations ................................... 127 185
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Total interest expense .............................. 3,731 3,483
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Net interest income ........................................ 4,536 4,207
Provision for loan losses .................................. 175 75
------ ------
Net interest income after provision for loan losses ........ 4,361 4,132
------ ------
Noninterest income
Deposit services ........................................ 764 669
Gains on securities available for sale .................. 112 126
Other ................................................... 315 274
------ ------
Total noninterest income ............................ 1,191 1,069
------ ------
Noninterest expenses
Salaries and employee benefits .......................... 2,541 2,357
Net occupancy expenses .................................. 491 412
Equipment expense ....................................... 100 75
Advertising, travel & entertainment ..................... 229 226
Supplies ................................................ 101 105
FDIC insurance .......................................... 12 1
Postage ................................................. 76 69
Other ................................................... 527 543
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Total noninterest expense ........................... 4,077 3,788
------ ------
Income before federal tax expense .......................... 1,475 1,413
Provision for tax expense .................................. 371 364
------ ------
Net Income ................................................. $1,104 $1,049
====== ======
Earnings Per Share
Net Income ................................................. $ .34 $ .32
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................................... $ 1,104 $ 1,049
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization ................................................ 608 503
Accretion of discount and loan fee ........................................... (237) (202)
Provision for loan losses .................................................... 175 75
Decrease in interest receivable .............................................. 181 425
(Increase) in other receivables and prepaids ................................. (976) (476)
(Increase) in deferred tax asset ............................................. (65) (38)
Increase (decrease) in interest payable ...................................... 47 (15)
(Gain) on sale of securities available for sale .............................. (112) (126)
(Gain) on sale of assets ..................................................... (5)
Increase (decrease) in other payables ........................................ 2,437 (2,939)
-------- --------
Net cash provided by (used in) operating activities ........................ 3,162 (1,749)
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale ............... 5,597 3,451
Proceeds from sales of mortgage-backed securities available for sale .......... 7,476 16,004
Proceeds from maturities of investment securities available for sale .......... 2,782 19,602
Proceeds from maturities of mortgage-backed securities available for sale ..... 7,233 2,647
Proceeds from maturities of investment securities held to maturity ............ 677 474
Proceeds from maturities of mortgage-backed securities held to maturity ....... 2,757 2,518
Purchases of investment securities available for sale ......................... (22,174) (7,739)
Purchases of mortgage-backed securities available for sale .................... (18,437) (27,366)
Purchases of marketable equity securities available for sale .................. (28) (55)
Net (increase) in federal funds sold .......................................... (3,675)
Net (increase) in loans ....................................................... (4,623) (6,266)
Purchases of premises and equipment ........................................... (267) (179)
Proceeds from sales of premises and equipment ................................. 24
Proceeds from sales of repossessed assets ..................................... 240 337
-------- --------
Net cash (used in) investing activities .................................... (18,767) (223)
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in demand and savings accounts .......................... $ 132 $ 1,209
Net increase in certificates of deposit .............................. 3,286 6,172
Proceeds from the issuance of common stock ........................... 79 73
Net (decrease) in federal funds purchased ............................ (1,550) (3,700)
Net increase in securities sold under agreement to repurchase ........ 8,976
Sale of treasury stock ............................................... 90
Purchase of treasury stock ........................................... (477) (121)
Loss on sale of treasury stock ....................................... (28)
FAS 109 - incentive stock options .................................... 35
Dividends paid ....................................................... (323) (309)
Net (decrease) in notes payable ...................................... (375) (411)
-------- --------
Net cash provided by financing activities ....................... 9,845 2,913
-------- --------
Net (decrease) increase in cash and cash equivalents .................. (5,760) 941
Cash and cash equivalents at beginning of period ...................... 31,653 26,321
-------- --------
Cash and cash equivalents at end of period ............................ $ 25,893 $ 27,262
======== ========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid ........................................................ $ 3,778 $ 3,498
Income taxes paid .................................................... $ 75 $ 80
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and repossessed assets through foreclosure ....... $ 239 $ 411
</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 Gain 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 ............................. 1,049 1,049
Cash dividend ($.10 per share) ......... (309) (309)
Common stock issued (4,881 shares) ..... 12 61 73
Purchase of 8,027 shares of
Treasury stock ........................ (121) (121)
Net unrealized losses on securities
available for sale (net of tax) ....... (631) (631)
-------- -------- -------- -------- -------- --------
Balance at March 31, 1996 .............. $ 7,865 $ 16,270 $ 9,863 $ (607) $ 22 $ 33,413
======== ======== ======== ======== ======== ========
Balance at December 31, 1996 ........... $ 8,290 $ 18,501 $ 9,628 $ (777) $ 962 $ 36,604
Net Income ............................. 1,104 1,104
Cash dividend ($.10 per share) ......... (323) (323)
Common stock issued (4,527 shares) ..... 11 68 79
Purchase of 27,271 shares of
Treasury stock ........................ (477) (477)
Sale of 9,500 shares of
Treasury stock ........................ (28) 90 62
Net unrealized losses on securities
available for sale (net of tax) ....... (732) (732)
FAS 109 - Incentive Stock Options ...... 35 35
-------- -------- -------- -------- -------- --------
Balance at March 31, 1997 .............. $ 8,301 $ 18,604 $ 10,381 $ (1,164) $ 230 $ 36,352
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet as of March 31, 1997, and the related
consolidated statements of income, shareholders' equity and cash flow for the
three month periods ended March 31, 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 March 31, 1997 and 1996, the number of shares
used to calculate earnings per share was 3,271,178 and 3,264,854, respectively.
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 will be required to adopt in 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 March 31, 1997, the adoption of FAS 128 did not have an
impact on the Company.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Quarter ended March 31, 1997 compared to March 31, 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 ended March 31,
1997 compared to the same period in 1996. Net income for the quarter ended
March 31, 1997 was $1,104,000 as compared to $1,049,000 for the same period in
1996.
Net Interest Income
Net interest income for the quarter ended March 31, 1997 was $4,536,000, an
increase of $329,000 or 7.8% when compared to the same period in 1996. Average
interest earning assets increased $31,323,000 or 7.7%, while the net interest
spread remained unchanged at 3.5% at March 31, 1996 and March 31, 1997.
During the three months ended March 31, 1997, Average Loans, funded primarily
by the growth in average deposits, average fed funds purchased and average
securities sold under agreements to repurchase increased $25,236,000 or 10.8%,
compared to the same period in 1996. The average yield on loans decreased from
8.8% at March 31, 1996 to 8.7% at March 31, 1997.
Average Securities increased $7,888,000 or 4.7% for the three months ended
March 31, 1997 when compared to the same period in 1996. The overall yield on
Average Securities increased to 6.7% during the three months ended March 31,
1997, from 6.5% during the same period in 1996.
Interest income from federal funds and other interest earning assets decreased
$27,000 or 38.0% for the three months ended March 31, 1997 when compared to
1996 as a result of the average balance decrease of 36.8%. The average yield
remained the same at 5.8% in 1997 and 1996.
Total interest expense increased $248,000 or 7.1% to $3,731,000 during the
three months ended March 31, 1997 as compared to $3,483,000 during the same
period in 1996. The increase was attributable to an increase in Average
Interest Bearing Liabilities of $23,697,000 or 7.3% and a slight increase in
the average yield on interest bearing liabilities from 4.3% in 1996 to 4.4% in
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.
SUMMARY OF INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
<TABLE>
<CAPTION>
AVERAGE YIELD OR AVERAGE YIELD OR
VOLUME INTEREST RATE PAID VOLUME INTEREST RATE PAID
----------------------------------------------------------------------
(Dollars in thousands)
Three Months Ended March 31, 1997 Three Months Ended March 31, 1996
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $258,103 $ 5,543 8.7% $232,867 $ 5,111 8.8%
Investment Securities (1) 63,240 1,088 7.0% 70,167 1,167 6.7%
Mortgage-backed
Securities 112,840 1,812 6.5% 98,025 1,564 6.4%
Other Interest Earning
Assets 3,097 44 5.8% 4,898 71 5.8%
-------- -------- -------- --------
TOTAL INTEREST
EARNING ASSETS $437,280 $ 8,487 7.9% $405,957 $ 7,913 7.8%
======== ======== ======== ========
INTEREST BEARING
LIABILITIES:
Deposits $328,390 $ 3,480 4.3% $306,972 $ 3,256 4.3%
Fed Funds Purchased
and Other Interest Bearing
Liabilities 10,255 124 4.9% 3,415 42 4.9%
Long Term Interest Bearing
Liabilities - FHLB Dallas 8,852 127 5.8% 13,413 185 5.5%
-------- -------- -------- --------
TOTAL INTEREST
BEARING LIABILITIES $347,497 $ 3,731 4.4% $323,800 $ 3,483 4.3%
======== ======== --- ======== ======== ---
NET INTEREST SPREAD 3.5% 3.5%
=== ===
</TABLE>
(1) Interest income includes taxable-equivalent adjustments of $220 and $223
as of March 31, 1997 and 1996, respectively.
Noninterest Income
Noninterest income was $1,191,000 for the quarter ended March 31, 1997 compared
to $1,069,000 for the same period in 1996. A $95,000 increase in deposit
services income accounted for most of the change. Deposit services income
increased as a direct result of the increase in average deposits and overdraft
and return check fee income from March 31, 1996 to March 31, 1997. Other
noninterest income increased $41,000 for the quarter ended March 31, 1997
primarily as a result of increases in mortgage servicing release fees received.
Gains on sales of securities decreased $14,000 for the three months ended March
31, 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 March 31, 1997 was
$187,415,000 with a net unrealized gain on that date of $642,000. The net
unrealized gain is comprised of $1,330,000 in unrealized gains and $688,000 in
unrealized losses.
8
<PAGE> 10
Noninterest Expense
Noninterest expense was $4,077,000 for the quarter ended March 31, 1997,
compared to $3,788,000 for the same period of 1996, representing an increase of
$289,000 for the period.
Salaries and employee benefits increased $184,000 or 7.8% during the three
months ended March 31, 1997 when compared to the same period in 1996. Increased
direct salary expense including payroll taxes of $233,000 was offset by lower
retirement and health insurance expense for the three months ended March 31,
1997 when compared to the same period in 1996.
FDIC insurance increased $11,000 for the quarter ended March 31, 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 and Loan bailout. This expense
increased to $1.29 per hundred dollar of deposits.
Provision for Income Taxes
The provision for tax expense ratio for the three months ended March 31, 1997
was 25.2% compared to 25.8% for the three months ended March 31, 1996. The
reduction is due to an increase in average tax free municipal securities when
comparing the two periods.
Capital Resources
Total shareholders' equity for the Company at March 31, 1997, of $36,352,000
was down .7% or $252,000 from December 31, 1996, and represented 7.3% of total
assets at March 31, 1997 compared to 7.6% of total assets at December 31, 1996.
Increases to shareholders' equity during the three months ended March 31, 1997
were net income of $1,104,000, common stock (4,527 shares) issued through
dividend reinvestment of $79,000 and an increase of $62,000 due to the sale of
9,500 shares of treasury stock. Decreases to shareholders' equity consisted of
$732,000 in net unrealized losses on securities available for sale, $323,000 in
dividends paid to shareholders and the purchase of 27,271 shares of treasury
stock for $477,000.
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. Through implementation of its capital policies, the company
has achieved a sound capital position. 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 March 31, 1997,
the Company and Southside Bank exceeded all regulatory minimum capital
requirements.
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.
9
<PAGE> 11
As of March 31, 1997, the most recent notification from the FDIC categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the bank must
maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios. There are no conditions or events since that notification that
management believes have changed the institutions' category.
It is management's intention to maintain the Company's capital at a level
acceptable to all regulatory authorities and future dividend payments will be
determined accordingly. Regulatory authorities require that any dividend
payments made by either the Company or Southside Bank not exceed earnings for
that year.
Liquidity and Interest Rate Sensitivity
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest sensitive
earning assets and interest bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing funds to meet their
credit needs. Interest rate sensitivity management seeks to avoid fluctuating
net interest margins and to enhance consistent growth of new interest income
through periods of changing interest rates. Through this process, market value
volatility is also a key consideration.
Cash, Interest Earning Deposits, Federal Funds Sold and short-term investments
with maturities or repricing characteristics of one year or less are the
principal sources of asset liquidity. At March 31, 1997, these investments were
19.0% of Total Assets. Historically, the overall liquidity of the Company has
been enhanced by a significant aggregate amount of core deposits and by the
lack of dependence on public fund deposits.
Composition of Loans
The Company's main objective is to seek attractive lending opportunities in
Smith County, Texas and adjoining counties. Total Average Loans increased
$25,236,000 or 10.8% from the three months ended March 31, 1996 to March 31,
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 first quarter ended March 31, 1997, loan charge-offs were $175,000 and
recoveries were $63,000, resulting in net charge-offs of $112,000 for the
quarter ended March 31, 1997. For the three months ended March 31, 1996, net
charge-offs were $134,000.
The loan loss reserve is based on the most current review of the loan portfolio
at that time. An internal loan review officer of the Company is responsible for
an ongoing review of Southside Bank's entire loan portfolio with specific goals
set for the volume of loans to be reviewed on an annual basis.
A list of loans which are graded as having more than the normal degree of risk
associated with them are maintained by the internal loan review officer. This
list is updated on a periodic basis but no less than quarterly by the servicing
officer in order to properly allocate necessary reserves and keep management
informed on the status of attempts to correct the deficiencies noted in the
credit.
10
<PAGE> 12
While management is aware of certain risk factors within segments of the loan
portfolio, reserve allocations have been made on an individual loan basis. An
additional reserve is maintained on the remainder of the portfolio of at risk
loans that is based on tracking of the Company's loan losses on loans that have
not been previously identified as problems.
Nonperforming Assets
The categories of nonperforming assets consist of delinquent loans over 90 days
past due, nonaccrual and restructured loans, other real estate owned and
repossessed assets. Delinquent loans over 90 days past due represent loans for
which the payment of principal or interest has not been received in a timely
manner. The full collection of both the principal and interest is still
expected but is being withheld due to negotiation or other items expected to be
resolved in the near future. Generally, a loan is categorized as nonaccrual
when principal or interest is past due 90 days or more, unless, in the
determination of management, the principal and interest on the loan are well
secured and in the process of collection. In addition, a loan is placed on
nonaccrual when, in the opinion of management, the future collectibility of
interest and principal is in serious doubt. When a loan is categorized as
nonaccrual, the accrual of interest is discontinued and any remaining accrued
interest is reversed in that period; thereafter, interest income is recorded
only when actually received. Restructured loans represent loans which have been
renegotiated to provide a reduction or deferral of interest or principal
because of deterioration in the financial position of the borrowers.
Categorization of a loan as nonperforming is not in itself a reliable indicator
of potential loan loss. Other factors, such as the value of collateral securing
the loan and the financial condition of the borrower must be considered in
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 March 31, 1997 were $2,751,000, up $102,000 or
3.9% from $2,649,000 at March 31, 1996. From March 31, 1996 to March 31 ,1997,
loans 90 days past due or more increased $83,000 or 25.1% to $414,000. The
majority of the 90 day past due 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.
Restructured loans increased $24,000 or 6.3% to $405,000, other real estate
remained the same at $273,000 and nonaccrual loans increased $48,000 or 3.6% to
$1,398,000. Repossessed assets decreased $53,000 or 16.9% to $261,000.
Expansion
During 1996, the Company completed construction on a new seven lane motor bank
facility at the North Tyler branch. In addition, the Company opened three full
service grocery store branches during the second half of 1996. The branch
locations are inside of the Super One Food Store on Troup Highway in Tyler, the
Brookshires Food Store in Tyler at Rice Road and South Broadway and the
Brookshires Food Store in Lindale.
Remodeling and expansion of the main bank headquarters on South Beckham began
during the second quarter of 1996 and should be completed during 1997.
Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts, including, but not limited to, statements found in this "Item
2". Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in such
forward-looking statements in this Quarterly Report could differ materially
from those stated in such forward-looking statements. Among the factors that
could cause actual results to differ materially are: general economic
conditions, competition, government regulations and possible future litigation,
as well as the risks and uncertainties discussed in this Quarterly Report,
including, without limitation, the portions referenced above, and the
uncertainties set forth from time to time in the Company's other public reports
and filings and public statements.
11
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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 three months
ended March 31, 1997.
(b) Reports on Form 8-K - None
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: 5-09-97
--------------
/s/ LEE R. GIBSON
-------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 5-09-97
--------------
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule for the three months ended March 31, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,893
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 165,316
<INVESTMENTS-CARRYING> 22,122
<INVESTMENTS-MARKET> 22,099
<LOANS> 262,439
<ALLOWANCE> 3,312
<TOTAL-ASSETS> 495,395
<DEPOSITS> 429,368
<SHORT-TERM> 12,226
<LIABILITIES-OTHER> 8,728
<LONG-TERM> 8,721
0
0
<COMMON> 8,301
<OTHER-SE> 28,051
<TOTAL-LIABILITIES-AND-EQUITY> 495,395
<INTEREST-LOAN> 5,543
<INTEREST-INVEST> 2,680
<INTEREST-OTHER> 44
<INTEREST-TOTAL> 8,267
<INTEREST-DEPOSIT> 3,480
<INTEREST-EXPENSE> 3,731
<INTEREST-INCOME-NET> 4,536
<LOAN-LOSSES> 175
<SECURITIES-GAINS> 112
<EXPENSE-OTHER> 4,077
<INCOME-PRETAX> 1,475
<INCOME-PRE-EXTRAORDINARY> 1,475
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,104
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 4.41
<LOANS-NON> 1,398
<LOANS-PAST> 414
<LOANS-TROUBLED> 405
<LOANS-PROBLEM> 392
<ALLOWANCE-OPEN> 3,249
<CHARGE-OFFS> 175
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 3,312
<ALLOWANCE-DOMESTIC> 3,312
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 211
</TABLE>
