<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 3,327,540 shares of
Common Stock, par value $2.50, outstanding at July 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>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................... $ 36,428 $ 31,653
Federal funds sold ........................................ 3,100
Investment securities:
Available for sale ..................................... 57,532 56,091
Held to maturity ....................................... 1,040 1,734
------------ ------------
Total Investment securities .......................... 58,572 57,825
Mortgage-backed and related securities:
Available for sale ..................................... 94,030 90,574
Held to maturity ....................................... 18,228 23,782
------------ ------------
Total Mortgage-backed securities ..................... 112,258 114,356
Marketable equity securities:
Available for sale ..................................... 2,275 2,220
Loans:
Loans, net of unearned discount ........................ 274,216 258,167
Less: Reserve for loan losses ......................... (3,377) (3,249)
------------ ------------
Net Loans ............................................ 270,839 254,918
Premises and equipment, net ............................... 13,999 13,695
Other real estate owned, net .............................. 462 273
Interest receivable ....................................... 3,464 3,300
Deferred tax asset ........................................ 734 464
Other assets .............................................. 5,601 3,990
------------ ------------
TOTAL ASSETS ......................................... $ 507,732 $ 482,694
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing .................................... $ 98,651 $ 98,901
Interest bearing ....................................... 342,866 327,049
------------ ------------
Total Deposits ....................................... 441,517 425,950
Short-term obligations:
Securities sold under agreement to repurchase .......... 4,977
Federal funds purchased ................................ 250 4,800
Long-term obligations:
Notes payable - FHLB Dallas ............................ 17,355 9,096
Other liabilities ......................................... 6,228 6,244
------------ ------------
TOTAL LIABILITIES .................................... 470,327 446,090
------------ ------------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,327,540 and 3,316,127 shares issued and outstanding) 8,319 8,290
Paid-in capital ........................................ 18,716 18,501
Retained earnings ...................................... 11,018 9,628
Treasury stock (93,017 and 62,986 shares at cost) ...... (1,399) (777)
Net unrealized gains on securities available for sale .. 751 962
------------ ------------
TOTAL SHAREHOLDERS' EQUITY .......................... 37,405 36,604
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $ 507,732 $ 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 June 30, Six Months Ended June 30,
----------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Interest income
Loans ............................................... $ 5,816 $ 5,220 $ 11,359 $ 10,331
Investment securities ............................... 963 850 1,831 1,794
Mortgage-backed and related securities .............. 1,879 1,702 3,691 3,266
Other interest earning assets ....................... 66 81 110 152
---------- ---------- ---------- ----------
Total interest income ........................... 8,724 7,853 16,991 15,543
Interest expense
Time and savings deposits ........................... 3,624 3,348 7,104 6,604
Short-term obligations .............................. 163 37 287 79
Long-term obligations ............................... 182 179 309 364
---------- ---------- ---------- ----------
Total interest expense .......................... 3,969 3,564 7,700 7,047
---------- ---------- ---------- ----------
Net interest income .................................... 4,755 4,289 9,291 8,496
Provision for loan losses .............................. 225 125 400 200
---------- ---------- ---------- ----------
Net interest income after provision for loan losses .... 4,530 4,164 8,891 8,296
---------- ---------- ---------- ----------
Noninterest income
Deposit services .................................... 860 690 1,624 1,359
Gains on securities available for sale .............. 40 11 152 137
Other ............................................... 306 272 621 546
---------- ---------- ---------- ----------
Total noninterest income ........................ 1,206 973 2,397 2,042
---------- ---------- ---------- ----------
Noninterest expense
Salaries and employee benefits ...................... 2,541 2,344 5,082 4,701
Net occupancy expense ............................... 506 416 997 828
Equipment expense ................................... 101 71 201 146
Advertising, travel & entertainment ................. 256 197 485 423
Supplies ............................................ 103 114 204 219
FDIC insurance ...................................... 13 25 1
Postage ............................................. 84 75 160 144
Other ............................................... 628 542 1,155 1,085
---------- ---------- ---------- ----------
Total noninterest expense ....................... 4,232 3,759 8,309 7,547
---------- ---------- ---------- ----------
Income before federal tax expense ...................... 1,504 1,378 2,979 2,791
Provision for tax expense .............................. 375 351 746 715
---------- ---------- ---------- ----------
Net Income ............................................. $ 1,129 $ 1,027 $ 2,233 $ 2,076
========== ========== ========== ==========
Earnings Per Share
Net Income ............................................. $ .34 $ .32 $ .68 $ .64
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................................... $ 2,233 $ 2,076
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization ................................................ 1,228 1,067
Accretion of discount and loan fees .......................................... (499) (409)
Provision for loan losses .................................................... 400 200
(Increase) in interest receivable ............................................ (164) (39)
(Increase) decrease in other receivables and prepaids ........................ (1,654) 88
(Increase) in deferred tax asset ............................................. (118) (113)
Increase in interest payable ................................................. 114 29
(Gain) on sales of securities available for sale ............................. (152) (137)
(Gain) on sale of assets ..................................................... (12) (6)
(Decrease) in other payables ................................................. (130) (1,097)
---------- ----------
Net cash provided by operating activities .................................. 1,246 1,659
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale ............... 16,507 15,016
Proceeds from sales of mortgage-backed securities available for sale .......... 18,898 18,991
Proceeds from maturities of investment securities available for sale .......... 10,772 24,172
Proceeds from maturities of mortgage-backed securities available for sale ..... 15,593 7,863
Proceeds from maturities of investment securities held to maturity ............ 700 692
Proceeds from maturities of mortgage-backed securities held to maturity ....... 5,612 4,670
Purchases of investment securities available for sale ......................... (28,613) (25,900)
Purchases of mortgage-backed securities available for sale .................... (38,426) (39,610)
Purchases of marketable equity securities available for sale .................. (55) (55)
Net (increase) in federal funds sold .......................................... (3,100)
Net (increase) in loans ....................................................... (16,984) (18,060)
Purchases of premises and equipment ........................................... (899) (1,693)
Proceeds from sales of premises and equipment ................................. 17 25
Proceeds from sales of repossessed assets ..................................... 518 611
---------- ----------
Net cash (used) in investing activities .................................... (19,460) (13,278)
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in demand and savings accounts ............................... $ 4,202 $ 3,293
Net increase in certificates of deposit ................................... 11,365 14,380
Proceeds from the issuance of common stock ................................ 201 189
Net (decrease) in federal funds purchased ................................. (4,550) (3,150)
Net increase in securities sold under agreement to repurchase ............. 4,977
Purchase of treasury stock ................................................ (733) (359)
Proceeds from sale of treasury stock ...................................... 77 81
Net increase (decrease) in notes payable .................................. 8,259 (813)
Dividends paid ............................................................ (809) (772)
---------- ----------
Net cash provided by financing activities ............................ 22,989 12,849
---------- ----------
Net increase in cash and cash equivalents ................................. 4,775 1,230
Cash and cash equivalents at beginning of period .......................... 31,653 26,321
---------- ----------
Cash and cash equivalents at end of period ................................ $ 36,428 $ 27,551
========== ==========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid ............................................................. $ 7,680 $ 7,018
Income taxes paid ......................................................... $ 875 $ 850
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and other repossessed assets through foreclosure ...... $ 663 $ 596
</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 ................................. 2,076 2,076
Cash dividend ($.25 per share) ............. (772) (772)
Common stock issued (12,375 shares) ........ 31 158 189
Purchase of 23,399 shares of
Treasury stock ............................ (359) (359)
Sale of 11,683 shares of
Treasury stock ............................ (30) 111 81
Net unrealized (losses) on securities
available for sale (net of tax) ........... (1,227) (1,227)
---------- ---------- ---------- ---------- ---------- ------------
Balance at June 30, 1996 ................... $ 7,884 $ 16,367 $ 10,397 $ (734) $ (574) $ 33,340
========== ========== ========== ========== ========== ============
Balance at December 31, 1996 ............... $ 8,290 $ 18,501 $ 9,628 $ (777) $ 962 $ 36,604
Net Income ................................. 2,233 2,233
Cash dividend ($.25 per share) ............. (809) (809)
Common stock issued (11,413 shares) ........ 29 172 201
Purchase of 41,731 shares of
Treasury stock ............................ (733) (733)
Sale of 11,700 shares of
Treasury stock ............................ (34) 111 77
Net unrealized (losses) on securities
available for sale (net of tax) ........... (211) (211)
FAS109-Incentive Stock Options ............. 43 43
---------- ---------- ---------- ---------- ---------- ------------
Balance at June 30, 1997 ................... $ 8,319 $ 18,716 $ 11,018 $ (1,399) $ 751 $ 37,405
========== ========== ========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet as of June 30, 1997, and the related
consolidated statements of income, shareholders' equity and cash flow for the
six month periods ended June 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 June 30, 1997 and 1996, the number of shares
used to calculate earnings per share was 3,280,747 and 3,268,973,
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 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 June 30, 1997, the
adoption of FAS 128 did not have an 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
a financial statements and (b) display of the accumulated balance of other
comprehensive income separate from retained earning 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 ended March 31, 1998.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter and six months ended June 30, 1997
compared to June 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 six months
ended June 30, 1997 compared to the same periods in 1996. Net income for the
quarter and six months ended June 30, 1997 was $1,129,000 and $2,233,000, as
compared to $1,027,000 and $2,076,000 for the same periods in 1996.
Net Interest Income
Net interest income for the quarter and six months ended June 30, 1997 was
$4,755,000 and $9,291,000, an increase of $466,000 and $795,000 or 10.9% and
9.4%, respectively, when compared to the same periods in 1996. Average
interest earning assets increased $33,815,000 or 8.2%, while the net interest
spread remained unchanged at 3.5% at June 30, 1997.
During the six months ended June 30, 1997, Average Loans, funded primarily by
the growth in average deposits, increased $25,626,000 or 10.8%, compared to
the same period in 1996. The average yield on loans decreased slightly from
8.8% at June 30, 1996 to 8.7% at June 30, 1997.
Average Securities increased $9,726,000 or 5.8% for the six months ended June
30, 1997 when compared to the same period in 1996. The overall yield on
Average Securities increased to 6.7% during the six months ended June 30,
1997, from 6.6% during the same period in 1996.
Interest income from federal funds and other interest earning assets
decreased $42,000 or 27.6% for the six months ended June 30, 1997 when
compared to 1996 as a result of the average balance decrease of 27.7%. The
average yield remained the same at 5.5% in 1996 and 1997.
Total interest expense increased $653,000 or 9.3% to $7,700,000 during the
six months ended June 30, 1997 as compared to $7,047,000 during the same
period in 1996. The increase was attributable to an increase in Average
Interest Bearing Liabilities of $27,385,000 or 8.4% and a slight increase in
the average yield on interest bearing liabilities from 4.3% at June 30, 1996
to 4.4% at June 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)
Six Months Ended June 30, 1997 Six Months Ended June 30, 1996
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 262,280 $ 11,359 8.7% $ 236,654 $ 10,331 8.8%
Investment Securities (1) 64,961 2,280 7.1% 66,220 2,237 6.8%
Mortgage-backed Securities 113,686 3,691 6.5% 102,701 3,266 6.4%
Other Interest Earning
Assets 4,002 110 5.5% 5,539 152 5.5%
---------- --------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS $ 444,929 $ 17,440 7.9% $ 411,114 $ 15,986 7.8%
========== ========= ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 333,062 $ 7,104 4.3% $ 311,005 $ 6,604 4.3%
Fed Funds Purchased and
Other Interest Bearing
Liabilities 11,004 287 5.3% 3,201 79 5.0%
Long Term Interest Bearing
Liabilities - FHLB Dallas 10,736 309 5.8% 13,211 364 5.5%
---------- --------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES $ 354,802 $ 7,700 4.4% $ 327,417 $ 7,047 4.3%
========== ========= ----- ========== ========== -----
NET INTEREST SPREAD 3.5% 3.5%
===== =====
</TABLE>
(1) Interest income includes taxable-equivalent adjustments of $449 and $443
as of June 30, 1997 and 1996, respectively.
Noninterest Income
Noninterest income was $2,397,000 for the six months ended June 30, 1997
compared to $2,042,000 for the same period in 1996. Deposit services income
increased $265,000 or 19.5% for the six months ended June 30, 1997. Deposit
services income increased as a direct result of the increase in average
deposits and overdraft and return check fee income from June 30, 1996 to June
30, 1997. Other noninterest income increased $75,000 or 13.7% for the six
months ended June 30, 1997 primarily as a result of increases in mortgage
servicing release fees received. Gains on sales of securities increased $15,000
for the six months ended June 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 June 30, 1997 was
$173,118,000 with a net unrealized gain on that date of $1,414,000. The net
unrealized gain is comprised of $1,818,000 in unrealized gains and $404,000 in
unrealized losses.
Noninterest Expense
Noninterest expense was $8,309,000 for the six months ended June 30, 1997,
compared to $7,547,000 for the same period of 1996, representing an increase of
$762,000 for the period.
8
<PAGE> 10
Salaries and employee benefits increased $381,000 or 8.1% during the six months
ended June 30, 1997 when compared to the same period in 1996. Increased direct
salary expense including payroll taxes of $495,000 was offset by lower
retirement expense for the six months ended June 30, 1997 when compared to the
same period in 1996.
FDIC insurance increased $24,000 for the six months ended June 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 and Loan Bailout.
Net occupancy expense increased $169,000 or 20.4% for the six months ended June
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 $70,000 or 6.5% for the six months ended June 30, 1997
when compared to the same period in 1996. Professional fees have increased as a
result of the Company outsourcing portions of the compliance, internal audit
and computer programming functions.
Provision for Income Taxes
The provision for tax expense ratio for the six months ended June 30, 1997 was
25.0% compared to 25.6% for the six months ended June 30, 1996. The reduction
is due to an increase in interest income from average tax free municipal
securities.
Capital Resources
Total shareholders' equity for the Company at June 30, 1997, of $37,405,000 was
up $801,000 from December 31, 1996, and represented 7.4% of total assets at
June 30, 1997 compared to 7.6% of total assets at December 31, 1996. Increases
to shareholders' equity during the six months ended June 30, 1997 were net
income of $2,233,000, common stock (11,413 shares) issued through dividend
reinvestment of $201,000 and an increase of $77,000 due to the sale of 11,700
shares of treasury stock. Decreases to shareholders' equity consisted of
$211,000 in net unrealized losses on securities available for sale, $809,000 in
dividends paid to shareholders and the purchase of 41,731 shares of treasury
stock for $733,000.
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 June 30, 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
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 June 30, 1997, these investments were
18.74% 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 significant 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
$25,626,000 or 10.8% from the six months ended June 30 1996 to June 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 second quarter and six months ended June 30, 1997, loan charge-offs
were $239,000 and $414,000 and recoveries were $79,000 and $142,000,
respectively, resulting in net charge-offs of $160,000 and $271,000. For the
second quarter and six months ended June 30, 1996, net charge-offs were $71,000
and $204,000, respectively.
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
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<PAGE> 12
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 June 30, 1997 were $3,009,000, up $426,000 or
16.5% from $2,583,000 at June 30, 1996. From June 30, 1996 to June 30 ,1997,
loans 90 days past due or more increased $307,000 or 80.4% to $689,000. The
majority of the 90 day past due loans are collateralized 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. OREO increased $189,000 or 69.2% from June 30, 1996 to June 30,
1997 as a result of a foreclosure during the second quarter of 1997.
Restructured loans increased $51,000 or 13.4% to $433,000, and nonaccrual loans
decreased $114,000 or 8.6% to $1,207,000. Repossessed assets decreased $7,000
or 3.1% to $218,000.
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 Conditions 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 risk 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
(a) An annual meeting of shareholders was held on April 23, 1997.
(b) The election of three directors (term expiring at the 2000
Annual Meeting) were as follows:
<TABLE>
<CAPTION>
FOR ABSTAIN WITHHELD
--------- ------- --------
<S> <C> <C> <C>
Herbert C. Buie 1,950,839 58,635 2,421
Robbie N. Edmonson 1,950,839 58,635 2,421
W. D. (Joe) Norton 1,950,839 58,635 2,421
</TABLE>
Directors continuing until the 1998 Annual Meeting are as
follows:
Fred E. Bosworth
B. G. Hartley
Directors continuing until the 1999 Annual Meeting are as
follows:
Rollins Caldwell
William Sheehy
Murph Wilson
(c) The matters voted upon and the results of the voting were as
follows:
The shareholders voted 2,009,223 shares in the affirmative, 173
shares in the negative, and 2,499 abstentions to ratify the
selection of Coopers and Lybrand as Southside Bancshares, Inc.'s
Independent Auditors for the year ending December 31, 1997.
ITEM 5. OTHER INFORMATION
Not Applicable
12
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No.
-------
27 - Financial Data Schedule for the six months ended
June 30, 1997.
(b) Reports on Form 8-K - None
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHSIDE BANCSHARES, INC.
(Registrant)
BY: /s/ B.G. HARTLEY
-------------------------------
B.G. Hartley, Chairman of the
Board and Chief Executive
Officer
(Principal Executive Officer)
DATE: 08-08-97
------------------
/s/ LEE R. GIBSON
-------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 08-08-97
------------------
14
<PAGE> 16
EXHIBIT INDEX
Exhibit No Description
- ---------- -----------
27 Financial Data Schedule for the six months ended
June 30, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 36,428
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 153,837
<INVESTMENTS-CARRYING> 19,268
<INVESTMENTS-MARKET> 19,281
<LOANS> 274,216
<ALLOWANCE> 3,377
<TOTAL-ASSETS> 507,732
<DEPOSITS> 441,517
<SHORT-TERM> 5,227
<LIABILITIES-OTHER> 6,228
<LONG-TERM> 17,355
0
0
<COMMON> 8,319
<OTHER-SE> 29,086
<TOTAL-LIABILITIES-AND-EQUITY> 507,732
<INTEREST-LOAN> 11,359
<INTEREST-INVEST> 5,522
<INTEREST-OTHER> 110
<INTEREST-TOTAL> 16,991
<INTEREST-DEPOSIT> 7,104
<INTEREST-EXPENSE> 7,700
<INTEREST-INCOME-NET> 9,291
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 152
<EXPENSE-OTHER> 8,309
<INCOME-PRETAX> 2,979
<INCOME-PRE-EXTRAORDINARY> 2,979
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,233
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 4.41
<LOANS-NON> 1,207
<LOANS-PAST> 689
<LOANS-TROUBLED> 433
<LOANS-PROBLEM> 699
<ALLOWANCE-OPEN> 3,249
<CHARGE-OFFS> 414
<RECOVERIES> 142
<ALLOWANCE-CLOSE> 3,377
<ALLOWANCE-DOMESTIC> 3,377
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 127
</TABLE>
