<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, 1998
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
------------ ------------
Commission file number 0-12247
------------------
SOUTHSIDE BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-1848732
- --------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 S. Beckham, Tyler, Texas 75701
- --------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 903-531-7111
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
The number of shares outstanding of each of the issuer's classes of
capital stock, as of the latest practicable date, was 3,680,711 shares of Common
Stock, par value $2.50, outstanding at October 19, 1998.
<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,
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Cash and due from banks ....................................................................... $ 22,252 $ 36,593
Investment securities:
Available for sale ......................................................................... 104,857 71,031
Held to maturity ........................................................................... 459 804
--------- ---------
Total Investment securities .............................................................. 105,316 71,835
Mortgage-backed and related securities:
Available for sale ......................................................................... 294,775 127,751
Held to maturity ........................................................................... 9,177 13,662
--------- ---------
Total Mortgage-backed securities ......................................................... 303,952 141,413
Marketable equity securities:
Available for sale ......................................................................... 10,717 3,258
Loans:
Loans, net of unearned discount ............................................................ 312,205 296,035
Less: Reserve for loan losses ............................................................. (3,585) (3,370)
--------- ---------
Net Loans ................................................................................ 308,620 292,665
Premises and equipment, net ................................................................... 17,892 17,627
Other real estate owned, net .................................................................. 131 364
Interest receivable ........................................................................... 5,230 3,918
Deferred tax asset ............................................................................ 460
Other assets .................................................................................. 6,090 3,012
--------- ---------
TOTAL ASSETS ............................................................................. $ 780,200 $ 571,145
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing ........................................................................ $ 115,222 $ 113,499
Interest bearing ........................................................................... 358,458 349,175
--------- ---------
Total Deposits ........................................................................... 473,680 462,674
Short-term obligations:
Federal funds purchased .................................................................... 3,919 3,884
Notes payable - FHLB Dallas ................................................................ 85,000 29,000
Other obligations .......................................................................... 1,672 1,647
--------- ---------
Total Short-term obligations ............................................................. 90,591 34,531
Long-term obligations:
Notes payable - FHLB Dallas ................................................................ 123,345 28,547
Guaranteed Preferred Beneficial Interest in the Company's
Junior Subordinated Debentures ........................................................... 20,000
--------- ---------
Total Long-term obligations .............................................................. 143,345 28,547
Deferred tax liability ........................................................................ 881
Other liabilities ............................................................................. 26,899 5,362
--------- ---------
TOTAL LIABILITIES ........................................................................ 735,396 531,114
--------- ---------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,680,711 and 3,496,269 shares issued and outstanding) ................................. 9,202 8,740
Paid-in capital ............................................................................ 24,128 21,290
Retained earnings .......................................................................... 10,136 10,414
Treasury stock (162,176 and 116,750 shares at cost) ........................................ (2,776) (1,820)
Accumulated other comprehensive income ..................................................... 4,114 1,407
--------- ---------
TOTAL SHAREHOLDERS' EQUITY .............................................................. 44,804 40,031
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................................. $ 780,200 $ 571,145
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated 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,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income
Loans ................................................... $ 6,704 $ 6,138 $ 19,424 $ 17,497
Investment securities ................................... 1,440 745 3,524 2,576
Mortgage-backed and related securities .................. 3,006 1,911 7,633 5,602
Other interest earning assets ........................... 175 104 435 214
--------- --------- --------- ---------
Total interest income ............................... 11,325 8,898 31,016 25,889
Interest expense
Time and savings deposits ............................... 3,941 3,795 11,554 10,899
Short-term obligations .................................. 1,359 283 2,371 570
Long-term obligations ................................... 1,629 61 3,313 370
--------- --------- --------- ---------
Total interest expense .............................. 6,929 4,139 17,238 11,839
--------- --------- --------- ---------
Net interest income ........................................ 4,396 4,759 13,778 14,050
Provision for loan losses .................................. 300 250 900 650
--------- --------- --------- ---------
Net interest income after provision for loan losses ........ 4,096 4,509 12,878 13,400
--------- --------- --------- ---------
Noninterest income
Deposit services ........................................ 1,343 1,193 3,820 2,817
Gain on securities available for sale ................... 700 9 935 161
Other ................................................... 361 354 1,072 975
--------- --------- --------- ---------
Total noninterest income ............................ 2,404 1,556 5,827 3,953
--------- --------- --------- ---------
Noninterest expense
Salaries and employee benefits .......................... 2,861 2,432 8,365 7,514
Net occupancy expense ................................... 621 532 1,735 1,529
Equipment expense ....................................... 111 108 336 309
Advertising, travel & entertainment ..................... 263 226 829 711
Supplies ................................................ 124 109 331 313
FDIC insurance .......................................... 14 13 41 38
Postage ................................................. 86 86 259 246
Other ................................................... 767 732 2,265 1,887
--------- --------- --------- ---------
Total noninterest expense ........................... 4,847 4,238 14,161 12,547
--------- --------- --------- ---------
Income before income taxes ................................. 1,653 1,827 4,544 4,806
Provision for income taxes ................................. 248 478 799 1,224
--------- --------- --------- ---------
Net Income ................................................. $ 1,405 $ 1,349 $ 3,745 $ 3,582
========= ========= ========= =========
Earnings Per Common Share-Basic ............................ $ .40 $ .37 $ 1.06 $ 1.00
========= ========= ========= =========
Earnings Per Common Share-Diluted .......................... $ .38 $ .36 $ 1.02 $ .97
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Compre- Compre- Share-
hensive Common Paid in Retained Treasury hensive holders'
Income Stock Capital Earnings Stock Income Equity
--------- --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ................ $ $ 8,740 $ 21,290 $ 10,414 $ (1,820) $ 1,407 $ 40,031
Net Income .................................. 3,745 3,745 3,745
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (see
disclosure below) ........................ 2,707 2,707 2,707
---------
Comprehensive income ........................ $ 6,452
=========
Common stock issued (16,162 shares) ......... 41 225 266
FAS 109 - Incentive Stock Options (ISO's) ... 42 42
Dividends declared on common stock .......... (1,009) (1,009)
Purchase of 51,426 shares of
treasury stock ........................... (1,016) (1,016)
Exercise of 6,000 shares of ISO's ........... (22) 60 38
Stock dividend .............................. 421 2,571 (2,992)
--------- --------- -------- --------- --------- --------
Balance at September 30, 1998 ............... $ 9,202 $ 24,128 $ 10,136 $ (2,776) $ 4,114 $ 44,804
========= ========= ======== ========= ========= ========
Disclosure of reclassification amount:
Unrealized holding gains arising during
period................................... $ 3,324
Less: reclassification adjustment for
gains included in net income............. (617)
---------
Net unrealized gains on securities.......... $ 2,707
=========
Balance at December 31, 1996................ $ $ 8,290 $ 18,501 $ 9,628 $ (777) $ 962 $ 36,604
Net Income.................................. 3,582 3,582 3,582
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (see
disclosure below)........................ 601 601 601
---------
Comprehensive income........................ $ 4,183
=========
Common stock issued (11,413 shares)......... 29 172 201
FAS 109 - Incentive Stock Options (ISO's)... 43 43
Dividends declared on common stock.......... (809) (809)
Purchase of 54,513 shares of
treasury stock........................... (960) (960)
Exercise of 11,700 shares of ISO's.......... (34) 111 77
Stock dividend.............................. 404 2,466 (2,870)
--------- --------- --------- --------- --------- --------
Balance at September 30, 1997............... $ 8,723 $ 21,182 $ 9,497 $ (1,626) $ 1,563 $ 39,339
========= ========= ========= ========= ========= ========
Disclosure of reclassification amount:
Unrealized holding gains arising during
period................................... $ 707
Less: reclassification adjustment for
gains included in net income............. (106)
---------
Net unrealized gains on securities......... $ 601
=========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 5
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................................... $ 3,745 $ 3,582
Adjustments to reconcile net cash provided by operations:
Depreciation ................................................................. 1,056 897
Amortization of premium ...................................................... 3,891 1,040
Accretion of discount and loan fees .......................................... (461) (638)
Provision for loan losses .................................................... 900 650
FAS109-Incentive stock options ............................................... 42 43
Gain on sale of securities available for sale ................................ (935) (161)
Loss (gain) on sale of assets ................................................ 35 (12)
Gain on sale of other real estate owned ...................................... (32)
Increase in interest receivable .............................................. (1,312) (59)
(Decrease) increase in receivables and other assets .......................... (3,029) 1,076
Increase in deferred tax asset ............................................... (54) (246)
Increase in interest payable ................................................. 187 256
Increase in other payables ................................................... 21,375 6,546
--------- ---------
Net cash provided by operating activities .................................. 25,408 12,974
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale ............... 48,783 24,987
Proceeds from sales of mortgage-backed securities available for sale .......... 30,455 31,542
Proceeds from maturities of investment securities available for sale .......... 7,399 14,481
Proceeds from maturities of mortgage-backed securities available for sale ..... 48,986 22,517
Proceeds from maturities of investment securities held to maturity ............ 345 809
Proceeds from maturities of mortgage-backed securities held to maturity ....... 4,522 7,720
Purchases of investment securities available for sale ......................... (87,247) (37,381)
Purchases of mortgage-backed securities available for sale .................... (247,657) (77,424)
Purchases of marketable equity securities available for sale .................. (7,459) (84)
Net increase in loans ......................................................... (18,025) (30,993)
Purchases of premises and equipment ........................................... (1,461) (4,612)
Proceeds from sales of premises and equipment ................................. 106 17
Proceeds from sales of other real estate owned ................................ 275 98
Proceeds from sales of repossessed assets ..................................... 1,111 777
--------- ---------
Net cash used in investing activities ...................................... (219,867) (47,546)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in demand and savings accounts ................................... $ 5,966 $ 7,323
Net increase in certificates of deposit ....................................... 5,040 11,041
Net increase in federal funds purchased ....................................... 35 1,868
Net increase in FHLB Dallas advances .......................................... 150,798 14,901
Net issuance of Guaranteed Preferred Beneficial Interest
in the Company's Junior Subordinated Debentures ............................. 20,000
Proceeds from the issuance of common stock .................................... 266 201
Purchase of treasury stock .................................................... (1,016) (960)
Sale of treasury stock ........................................................ 38 77
Dividends paid ................................................................ (1,009) (809)
--------- ---------
Net cash provided by financing activities ................................ 180,118 33,642
--------- ---------
Net decrease in cash and cash equivalents ..................................... (14,341) (930)
Cash and cash equivalents at beginning of period .............................. 36,593 31,653
--------- ---------
Cash and cash equivalents at end of period .................................... $ 22,252 $ 30,723
========= =========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid ................................................................. $ 17,051 $ 11,677
Income taxes paid ............................................................. $ 850 $ 1,500
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of OREO and other repossessed assets through foreclosure .......... $ 1,170 $ 815
</TABLE>
The accompanying notes are an integral part of these
consolidated 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, 1998, and the related
consolidated statements of income, shareholders' equity and cash flow for the
nine month periods ended September 30, 1998 and 1997 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
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128) which 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. Earnings per share
have been adjusted to give retroactive recognition to stock dividends.
Earnings per share on a basic and diluted basis as required by FAS 128,
"Earnings Per Share" is calculated as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Basic net earnings per share
Net income .................................................... $ 3,745 $ 3,582
Weighted average shares outstanding ........................... 3,536 3,569
---------- ----------
$ 1.06 $ 1.00
========== ==========
Diluted net earnings per share
Net income .................................................... $ 3,745 $ 3,582
Weighted average shares outstanding plus
assumed conversions ........................................ 3,675 3,676
---------- ----------
$ 1.02 $ .97
========== ==========
Calculation of weighted average shares outstanding plus
assumed conversions
Weighted average shares outstanding ........................... 3,536 3,569
Effect of dilutive securities options ......................... 139 107
---------- ----------
3,675 3,676
========== ==========
</TABLE>
3. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). This statement, which the Company adopted January 1, 1998, establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The new standard
requires that all items that are required to be recognized under generally
accepted accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
6
<PAGE> 8
The components of accumulated comprehensive income are as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
---------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period ..... $ 5,036 $ (1,712) $ 3,324
Less: reclassification adjustment for gains
realized in net income ......................... (935) 318 (617)
--------- --------- ---------
Net unrealized gains .............................. 4,101 (1,394) 2,707
--------- --------- ---------
Other comprehensive income ............................ $ 4,101 $ (1,394) $ 2,707
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended September 30, 1998
---------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period ..... $ 4,421 $ (1,503) $ 2,918
Less: reclassification adjustment for gains
realized in net income ......................... (700) 238 (462)
--------- --------- ---------
Net unrealized gains .............................. 3,721 (1,265) 2,456
--------- --------- ---------
Other comprehensive income ............................ $ 3,721 $ (1,265) $ 2,456
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
---------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period ..... $ 1,071 $ (364) $ 707
Less: reclassification adjustment for gains
realized in net income ......................... (161) 55 (106)
--------- --------- ---------
Net unrealized gains .............................. 910 (309) 601
--------- --------- ---------
Other comprehensive income ............................ $ 910 $ (309) $ 601
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended September 30, 1997
---------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period ..... $ 1,239 $ (421) $ 818
Less: reclassification adjustment for gains
realized in net income ......................... (9) 3 (6)
--------- --------- ---------
Net unrealized gains .............................. 1,230 (418) 812
--------- --------- ---------
Other comprehensive income ............................ $ 1,230 $ (418) $ 812
========= ========= =========
</TABLE>
7
<PAGE> 9
4. Recent Pronouncements
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" (FAS 132). This statement, which the
Company will be required to adopt December 31, 1998, amends FAS 87, Employers'
Accounting for Pension, FAS 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits and
FAS 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. The new standard revises employers' disclosures about pension and
other postretirement benefit plans without changing the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pension and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis, and eliminates certain
disclosures. This statement has no impact on the financial position or result
of operations of the Company, but may require changes in the Company's
disclosure requirements.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction.
Management of the Company anticipates that the adoption of FAS 133 will not
have a significant effect on the Company's results of operations or its
financial position.
5. Guaranteed Preferred Beneficial Interest in the Company's Subordinated
Debt
In April 1998, the Company formed a wholly-owned non-banking subsidiary
Southside Capital Trust (the "Trust Issuer"). The Trust Issuer was created
under the Business Trust Act of Delaware for the sole purpose of issuing and
selling Preferred Securities and Common Securities and using proceeds from the
sale of the Preferred Securities and Common Securities to acquire Junior
Subordinated Debentures (the "Debentures") issued by the Company. Accordingly,
the Debentures are the sole assets of the Trust Issuer and payments under the
Debentures are the sole revenue of the Trust Issuer. All of the Common
Securities are owned by the Company.
The Company's obligations under the Debentures and related documents, taken
together, constitute a full and unconditional guarantee by the Company of the
Trust Issuer's obligations under the Preferred Securities. Although the
Debentures are treated as debt of the Company, they currently qualify for tier
1 capital treatment subject to a limitation that the securities included as
tier 1 capital not exceed 25% of total tier 1 capital. The Securities are
callable by the Company on or about June 30, 2003, or earlier in the event the
deduction of related interest for federal income taxes is prohibited,
treatment as tier 1 capital is no longer permitted or certain other
contingencies arise. The Preferred Securities must be redeemed upon maturity
of the Debentures in year 2028.
On May 18, 1998, the Company through the Trust sold 2,000,000 Preferred
Securities at a liquidation amount of $10 per Preferred Security for an
aggregate amount of $20,000,000. It has a distribution rate of 8.50% per annum
payable at the end of each calendar quarter.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Quarter and nine months ended September 30,
1998 compared to September 30, 1997.
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, 1998 compared to the same periods in 1997. Net income for
the quarter and nine months ended September 30, 1998 was $1,405,000 and
$3,745,000, as compared to $1,349,000 and $3,582,000 for the same periods in
1997.
Net Interest Income
Net interest income for the quarter and nine months ended September 30, 1998 was
$4,396,000 and $13,778,000, a decrease of $363,000 or 7.6% for the quarter and
$272,000 or 1.9% for the nine months when compared to the same periods in 1997.
Average interest earning assets increased $144,209,000 or 31.9%, while the net
interest spread decreased from 3.5% at September 30, 1997 to 2.5% at September
30, 1998. During the second and third quarters, the Company leveraged the
balance sheet to offset the interest expense associated with the Trust Preferred
Securities issued. The leverage strategy produced a resulting spread for the
leveraged portion of the balance sheet which was significantly less than the
Company's previous average. Additionally, during the second and third quarters,
prepayments on the Company's mortgage-backed securities increased. This resulted
in additional amortization expense for the premium mortgage-backed securities
and was a factor in net interest income decreasing. In addition, during the
third quarter as rates decreased and prepayment concerns increased, the bank
increased the amortization of a portion of the premium on specific
mortgage-backed securities in the portfolio. Also decreasing net interest income
was the significant increase during the second quarter of tax free municipal
securities. These securities have lower coupons, but reduce federal income tax
expense.
During the nine months ended September 30, 1998, Average Loans, funded primarily
by the growth in average deposits and average FHLB Dallas advances, increased
$31,951,000 or 11.9%, compared to the same period in 1997. The average yield on
loans decreased slightly from 8.7% at September 30, 1997 to 8.6% at September
30, 1998.
Average Securities increased $107,729,000 or 60.5% for the nine months ended
September 30, 1998 when compared to the same period in 1997. The overall yield
on Average Securities decreased to 5.8% during the nine months ended September
30, 1998 from 6.7% during the same period in 1997, primarily due to increased
prepayment speeds on mortgage-backed securities which lead to increased
amortization, combined with lower overall rates and an increase in the tax free
municipal securities portfolio.
Interest income from federal funds and other interest earning assets increased
$221,000 or 103.3% for the nine months ended September 30, 1998 when compared to
1997 as a result of the average balance increase of 87.6%. The average yield
increased from 5.5% in 1997 to 6.0% at September 30, 1998.
Total interest expense increased $5,399,000 or 45.6% to $17,238,000 during the
nine months ended September 30, 1998 as compared to $11,839,000 during the same
period in 1997. The increase was attributable to an increase in Average Interest
Bearing Liabilities of $125,849,000 or 34.9% and an increase in the average
yield on interest bearing liabilities from 4.4% at September 30, 1997 to 4.7% at
September 30, 1998. Average Interest Bearing Deposits increased $16,455,000 or
4.9% while the average rate paid increased slightly from 4.3% at September 30,
1997 to 4.4% at September 30, 1998. Average Short-term Interest Bearing
Liabilities, consisting primarily of FHLB Dallas advances and Federal Funds
Purchased, increased $44,946,000 or 321.3% as compared to the same period in
1997. This increase reflects a strategically planned increase in balance sheet
leverage to achieve certain Asset/Liability Management Committee ("ALCO")
objectives. Average Long-term Interest Bearing Liabilities consisting of FHLB
Dallas
9
<PAGE> 11
advances increased $54,631,000 or 644.3% compared to $8,479,000 at September 30,
1997. The advances were obtained from FHLB Dallas to fund long-term loans and as
part of the Company's balance sheet leverage strategy. FHLB Dallas advances are
collateralized by FHLB Dallas stock, nonspecified real estate loans and
securities.
Average Long Term Junior Subordinated Debentures increased $9,817,000 or 100%
from September 30, 1997 to September 30, 1998 as a result of the issuance of the
Preferred Securities.
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, 1998 Nine Months Ended September 30, 1997
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING
ASSETS:
Loans $ 301,335 $ 19,424 8.6% $ 269,384 $ 17,497 8.7%
Investment Securities (1) 91,323 4,796 7.0% 61,751 3,278 7.1%
Mortgage-backed Securities 194,608 7,633 5.2% 116,451 5,602 6.4%
Other Interest Earning
Assets 9,697 435 6.0% 5,168 214 5.5%
---------- ---------- ---------- ----------
TOTAL INTEREST EARNING
ASSETS $ 596,963 $ 32,288 7.2% $ 452,754 $ 26,591 7.9%
========== ========== ========== ==========
INTEREST BEARING LIABILITIES:
Deposits $ 354,311 $ 11,554 4.4% $ 337,856 $ 10,899 4.3%
Fed Funds Purchased and
Other Interest Bearing
Liabilities 5,028 207 5.5% 13,990 570 5.4%
Short Term Interest Bearing
Liabilities - FHLB Dallas 53,908 2,164 5.4%
Long Term Interest Bearing
Liabilities - FHLB Dallas 63,110 2,690 5.7% 8,479 370 5.8%
Long Term Junior
Subordinated Debentures 9,817 623 8.5%
---------- ---------- ---------- ----------
TOTAL INTEREST BEARING
LIABILITIES $ 486,174 $ 17,238 4.7% $ 360,325 $ 11,839 4.4%
========== ========== --- ========== ========== ---
NET INTEREST SPREAD 2.5% 3.5%
====== ======
</TABLE>
(1) Interest income includes taxable-equivalent adjustments of $1,272 and $702
as of September 30, 1998 and 1997, respectively.
Noninterest Income
Noninterest income was $5,827,000 for the nine months ended September 30, 1998
compared to $3,953,000 for the same period in 1997. Deposit services income
increased $1,003,000 or 35.6% for the nine months ended September 30, 1998.
Deposit services income increased as a direct result of the introduction in June
1997 of an overdraft privilege program, increased numbers of deposit accounts
and increased deposit activity from September 30, 1997 to September 30, 1998.
Other noninterest income increased $97,000 or 9.9% for the nine months ended
September 30, 1998 primarily as a result of increases in trust income. Gains on
sales of securities increased $774,000 for the nine months ended September 30,
1998 compared to the same period in 1997. During the third quarter, Southside
sold longer term municipal securities and higher collateral mortgage-backed
securities and replaced them primarily with lower collateral mortgage-backed
securities in an effort to reduce the overall risk of prepayments. Sales of
securities available for sale were the result of changes in economic conditions
and a change in the mix of the securities portfolio.
10
<PAGE> 12
The market value of the entire securities portfolio at September 30, 1998 was
$420,016,000 with a net unrealized gain on that date of $6,362,000. The net
unrealized gain is comprised of $6,630,000 in unrealized gains and $268,000 in
unrealized losses.
Noninterest Expense
Noninterest expense was $14,161,000 for the nine months ended September 30,
1998, compared to $12,547,000 for the same period of 1997, representing an
increase of $1,614,000 or 12.9%.
Salaries and employee benefits increased $851,000 or 11.3% during the nine
months ended September 30, 1998 when compared to the same period in 1997. Direct
salary expense and payroll taxes increased $813,000 as a result of personnel
additions for the nine months ended September 30, 1998 when compared to the same
period in 1997. Retirement expense increased $83,000 or 20.7% for the nine
months ended September 30, 1998 when compared to the same period in 1997.
Net occupancy expense increased $206,000 or 13.5% for the nine months ended
September 30, 1998 compared to the same period in 1997, largely due to higher
real estate taxes, depreciation expense and the expansion of the bank
headquarters completed during 1997.
Advertising, travel and entertainment expense increased $118,000 or 16.6% for
the nine months ended September 30, 1998 compared to the same period in 1997.
The increase occurred due to increases in direct advertising as a result of new
products introduced in 1997.
Other noninterest expense increased $378,000 or 20.0% for the nine months ended
September 30, 1998 when compared to the same period in 1997. The increase was
due primarily to increased professional fees paid for additional internal
auditing, data processing programming, compliance reviews, loan loss reviews and
consulting fees paid in relation to the overdraft privilege product. Other
increases occurred in trust expenses and ATM expenses which were a direct result
of the increased activity in those accounts. The increases in expense were more
than offset by the increased income in trust income and ATM fee income.
Provision for Income Taxes
The provision for the income tax expense for the nine months ended September 30,
1998 was 17.6% compared to 25.5% for the nine months ended September 30, 1997.
The reduction is due to an increase in interest income from tax free municipal
securities.
Capital Resources
Total shareholders' equity for the Company at September 30, 1998, of $44,804,000
was up $4,773,000 from December 31, 1997, and represented 5.7% of total assets
at September 30, 1998 compared to 7.0% of total assets at December 31, 1997.
Increases to shareholders' equity during the nine months ended September 30,
1998 were net income of $3,745,000, common stock (16,162 shares) issued through
dividend reinvestment of $266,000, an increase of $38,000 due to the exercise
of 6,000 shares of incentive stock options and an increase of $2,707,000 in net
unrealized gains on securities available for sale. Decreases to shareholders'
equity consisted of $1,009,000 in dividends paid to shareholders and the
purchase of 51,426 shares of treasury stock for $1,016,000.
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
11
<PAGE> 13
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,
1998, 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.
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, 1998, these investments
were 20.5% 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.
On May 18, 1998, the Company through the Trust Issuer sold 2,000,000 shares of
Preferred Securities at a liquidation amount of $10 per Preferred Security for
an aggregate amount of $20 million. It has a distribution rate of 8.50% per
annum payable at the end of each calendar quarter.
The proceeds received by the Company from the Trust Issuer are used for general
corporate purposes which may include branch acquisitions of other financial
institutions. In addition, a portion of the proceeds may be contributed through
investments in or advances to the Subsidiary Banks.
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
$31,951,000 or 11.9% from the nine months ended September 30, 1997 to September
30, 1998. 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
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
12
<PAGE> 14
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.
For the third quarter and nine months ended September 30, 1998, loan charge-offs
were $359,000 and $948,000 and recoveries were $104,000 and $263,000,
respectively, resulting in net charge-offs of $255,000 and $685,000. For the
third quarter and nine months ended September 30, 1997, net charge-offs were
$279,000 and $551,000, respectively.
The increase in net charge-offs for the nine months ended September 30, 1998
occurred primarily as a result of the increase in loans and increased
bankruptcies. As a result of these and other factors, the necessary provision
expense was estimated at $900,000 for the nine months ended September 30, 1998.
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, 1998 were $2,220,000, down $871,000
or 28.2% from $3,091,000 at December 31, 1997. From December 31, 1997 to
September 30, 1998, nonaccrual loans decreased $632,000 or 47.0% to $712,000.
Loans 90 days past due or more decreased $91,000 or 12.3% to $651,000. 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. Other real estate decreased $233,000 or 64.0% to $131,000.
Restructured loans increased $36,000 or 8.3% to $471,000. Repossessed assets
increased $49,000 or 23.8%.
Expansion
In June 1998 the Company opened a grocery store branch in Longview, Texas. The
Company anticipates it will also open a free standing full-service branch with
drive up facilities in Longview during the fourth quarter of 1998. The Company's
television and radio advertising has extended into this market area for several
years, providing Southside Bank name recognition in the greater Longview area.
The Company also plans to open a full service branch in the new Walmart
Supercenter in Tyler, Texas during the fourth quarter of 1998.
13
<PAGE> 15
Year 2000 Compliance (Y2K)
In May 1997, the Federal Financial Institutions Examination Council ("FFIEC")
issued an interagency statement to the chief executive officers of all federally
supervised financial institutions regarding Y2K project management awareness.
The FFIEC has highly prioritized Y2K compliance in order to avoid major
disruptions to the operations of financial institutions and the country's
financial systems when the new century results in two digit dates for the year
being below the prior year's value. The FFIEC statement provides guidance to
financial institutions, providers of data services, and all examining personnel
of the federal banking agencies regarding the Y2K issue. The federal banking
agencies have been conducting Y2K compliance examinations, and the failure to
implement an adequate Y2K program can be identified as an unsafe and unsound
banking practice. The FDIC has established an examination procedure which
contains three categories of ratings: "Satisfactory", "Needs Improvement", and
"Unsatisfactory". Institutions that receive a Y2K rating of Unsatisfactory may
be subject to formal enforcement action, supervisory agreements, cease and
desist orders, civil money penalties, or the appointment of a conservator. In
addition, federal banking agencies will be taking into account Y2K compliance
programs when reviewing applications and may deny an application based on Y2K
related issues.
Y2K Issue
The Y2K issue concerns the potential impact of historic computer software code
that only utilizes two digits to represent the calendar year (e.g. "98" for
"1998"). Software so developed, and not corrected, could produce inaccurate or
unpredictable results commencing upon January 1, 2000, when current and future
dates present a lower two digit year number than dates in the prior century. The
Company, similar to most financial services providers, is significantly subject
to the potential impact of the Y2K issue due to the nature of financial
information. Potential impacts to the Company may arise from software, computer
hardware, and other equipment both within the Company's direct control and
outside of the Company's ownership, yet with which the Company electronically or
operationally interfaces. Financial institution regulators have intensively
focused upon Y2K exposures, issuing guidance concerning the responsibilities of
senior management and directors. Y2K testing and certification is being
addressed as a key safety and soundness issue in conjunction with regulatory
exams.
In order to address the Y2K issue, the Company has developed and implemented a
five phase plan divided into the following major components:
1. awareness
2. assessment
3. renovation
4. validation
5. implementation
The Company has completed the first two phases of the plan with customer
awareness ongoing and is currently working internally and with external vendors
on the final three phases. Other important segments of the Y2K plan are to
identify those loan customers whose possible lack of Y2K preparedness might
expose the Bank to financial loss, and to highlight any servicers of purchased
loans or securities which might present Y2K operating problems.
The Board of Directors has established a Y2K subcommittee to monitor progress
with achieving and certifying Y2K compliance. In addition, the Company has
utilized external consulting firms to assist with its Y2K program. The Company's
current plan is to complete the Y2K project by March 31, 1999. Final validation
testing with the Company's primary applications programs is scheduled for
November, 1998.
Following its completion of the assessment phase, the Company determined that a
significant portion of its computer hardware and software did not require
updating or replacement to achieve Y2K compliance. However, the Company is
currently in the process of replacing its general ledger and archive retrieval
14
<PAGE> 16
systems, as the existing systems were already slated for removal due to their
age and limited capacity to support the Company's strategic plan. The new
systems, which are scheduled to be installed and operational prior to December
31, 1998, will also provide Y2K compliance. If such new systems are not
implemented in time, the Y2K issue could have a material unfavorable impact upon
the operations of the Company.
The Company has limited internally generated programmed software coding to
correct, as substantially all of the software utilized by the Company is
purchased or licensed from external providers. The Company has determined that
it has little to no exposure to contingencies related to the Y2K issue for
products it has sold.
The Company has initiated formal communications with all of its significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Y2K issues.
The Company is requesting that third party vendors represent their products and
services to be Y2K compliant and that they have a program to test for that
compliance. However, the response of certain third parties is beyond the control
of the Company. To the extent that the Company does not receive adequate
responses by December 31, 1998, it is prepared to develop contingency plans,
with completion of these plans scheduled for no later than March 31, 1999. At
this time, the Company cannot estimate the additional cost, if any, that might
develop from such contingency plans. The Company is prepared to curtail credit
availability to customers identified as having material exposure to the Y2K
issue. However, the Company's ability to exercise such curtailment may be
limited by various factors, including existing legal agreements and potential
concerns regarding lender liability.
The Company's total Y2K estimated project cost, which is based upon currently
available information, includes expenses for the review and testing of third
parties, including government entities. However, there can be no guarantee that
the hardware, software, and systems of such third parties will be without
unfavorable Y2K issues and therefore not present a material adverse impact upon
the Company.
Y2K compliance costs incurred during the first nine months of 1998 totaled
approximately $310,000, the majority of which was related to hardware and
software acquisitions. This figure does not include the implicit costs
associated with the reallocation of internal staff hours to Y2K project related
efforts. At this time, management currently estimates additional Y2K compliance
costs, which are expensed on a current period basis except for fixed asset
purchases, at between $150,000 and $200,000. The estimated costs associated with
the Y2K project have decreased from the original estimate. The Company's
testing indicates less hardware purchases will be required than originally
estimated. This range of cost does not include normal ongoing costs for computer
hardware (including ATM's) and software that would be replaced in the next year
even without the presence of the Y2K issue in conjunction with the Company's
ongoing programs for updating and expanding its delivery infrastructure. The
aforementioned Y2K project cost estimate may change as the Company progresses in
its Y2K program and obtains additional information associated with and conducts
further testing concerning third parties. At this time, no significant projects
have been delayed as a result of the Company's Y2K effort.
Despite the Company's activities in regards to the Y2K issue, there can be no
assurance that partial or total systems interruptions or the costs necessary to
update hardware and software would not have a material adverse effect upon the
Company's business, financial condition, results of operations, and business
prospects.
Forward-Looking Information
Certain statements of other than historical fact that are contained in this
document and in written material, press releases and oral statements issued by
or on behalf of the Company may be considered to be "forward-looking statements"
as that term is defined in the Private Securities Litigation Reform Act of 1995.
These statements may include words such as "expect," "estimate," "project,"
"anticipate," "should," "intend," "probability," "risk," "target," "objective"
and similar expressions. Forward-looking statements are subject to significant
risks and uncertainties and the Company's actual results may differ materially
from the results discussed in the forward-looking statements. For example,
certain market risk disclosures are dependent on choices about key model
characteristics and assumptions and are subject to various limitations. See
"Item 2 Management's Discussion and Analysis of Financial Condition and Results
of
15
<PAGE> 17
Operations." By their nature, certain of the market risk disclosures are only
estimates and could be materially different from what actually occurs in the
future. As a result, actual income gains and losses could materially differ from
those that have been estimated. Other factors that could cause actual results to
differ materially from forward-looking statements include, but are not limited
to general economic conditions, either nationally or in the State of Texas,
legislation or regulatory changes which adversely affect the businesses in which
the Company is engaged, changes in the interest rate environment which reduce
interest margins, significant increases in competition in the banking and
financial services industry, changes in consumer spending, borrowing and saving
habits, technological changes, the Company's ability to increase market share
and control expenses, the effect of compliance with legislation or regulatory
changes, the effect of changes in accounting policies and practices and the
costs and effects of unanticipated litigation.
16
<PAGE> 18
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 nine months ended
September 30, 1998.
(b) Reports on Form 8-K - None
17
<PAGE> 19
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: 11-09-98
----------------------
/s/ LEE R. GIBSON
----------------------------------------
Lee R. Gibson, Executive Vice
President (Principal Financial
and Accounting Officer)
DATE: 11-09-98
----------------------
18
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No Description
- ---------- -----------
<S> <C>
27 Financial Data Schedule for the nine months ended
September 30, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,252
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 410,349
<INVESTMENTS-CARRYING> 9,636
<INVESTMENTS-MARKET> 9,667
<LOANS> 312,205
<ALLOWANCE> 3,585
<TOTAL-ASSETS> 780,200
<DEPOSITS> 473,680
<SHORT-TERM> 90,591
<LIABILITIES-OTHER> 27,780
<LONG-TERM> 143,345
0
0
<COMMON> 9,202
<OTHER-SE> 35,602
<TOTAL-LIABILITIES-AND-EQUITY> 780,200
<INTEREST-LOAN> 19,424
<INTEREST-INVEST> 11,157
<INTEREST-OTHER> 435
<INTEREST-TOTAL> 31,016
<INTEREST-DEPOSIT> 11,554
<INTEREST-EXPENSE> 17,238
<INTEREST-INCOME-NET> 13,778
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 935
<EXPENSE-OTHER> 14,161
<INCOME-PRETAX> 4,544
<INCOME-PRE-EXTRAORDINARY> 4,544
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,745
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 3.37
<LOANS-NON> 712
<LOANS-PAST> 651
<LOANS-TROUBLED> 471
<LOANS-PROBLEM> 216
<ALLOWANCE-OPEN> 3,370
<CHARGE-OFFS> 948
<RECOVERIES> 263
<ALLOWANCE-CLOSE> 3,585
<ALLOWANCE-DOMESTIC> 3,585
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 287
</TABLE>
