UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (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, 2001 ------------------------------------------------- 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 October 31, 2001 was 7,840,354 shares of Common Stock, par value $1.25.
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 2001 2000 ------------- ------------ <S> <C> <C> Cash and due from banks .............................................................. $ 32,624 $ 38,800 Investment securities: Available for sale ................................................................ 150,254 56,777 Held to maturity .................................................................. -- 104,508 ------------- ------------ Total Investment securities ..................................................... 150,254 161,285 Mortgage-backed and related securities: Available for sale ................................................................ 473,610 269,286 Held to maturity .................................................................. -- 142,961 ------------- ------------ Total Mortgage-backed securities ................................................ 473,610 412,247 Marketable equity securities: Available for sale ................................................................ 21,096 20,226 Loans: Loans, net of unearned discount ................................................... 524,673 481,435 Less: Reserve for loan losses ..................................................... (5,758) (5,033) ------------- ------------ Net Loans ....................................................................... 518,915 476,402 Premises and equipment, net .......................................................... 25,500 25,475 Interest receivable .................................................................. 8,347 9,117 Deferred tax asset ................................................................... -- 2,922 Other assets ......................................................................... 7,874 5,407 ------------- ------------ TOTAL ASSETS .................................................................... $ 1,238,220 $ 1,151,881 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing ............................................................... $ 169,085 $ 166,899 Interest bearing .................................................................. 560,197 553,706 ------------- ------------ Total Deposits .................................................................. 729,282 720,605 Short-term obligations: Federal funds purchased ........................................................... 5,425 5,025 FHLB Dallas advances .............................................................. 149,680 148,940 Other obligations ................................................................. 2,226 2,278 ------------- ------------ Total Short-term obligations ................................................... 157,331 156,243 Long-term obligations: FHLB Dallas advances .............................................................. 224,360 179,645 Guaranteed Preferred Beneficial Interest in the Company's Junior Subordinated Debentures ............................................... 20,000 20,000 Guaranteed Preferred Beneficial Interest in the Company's Junior Subordinated Convertible Debentures ................................... 16,950 16,950 ------------- ------------ Total Long-term obligations .................................................... 261,310 216,595 Deferred tax liability ............................................................... 2,841 -- Other liabilities .................................................................... 19,472 6,743 ------------- ------------ TOTAL LIABILITIES ............................................................... 1,170,236 1,100,186 ------------- ------------ Shareholders' equity: Common stock: ($1.25 par, 20,000,000 shares authorized, 8,696,157 and 8,215,135 shares issued and outstanding) ........................ 10,870 10,269 Paid-in capital ................................................................... 34,923 30,226 Retained earnings ................................................................. 21,806 19,891 Treasury stock (877,052 and 606,552 shares at cost) ............................... (7,972) (5,357) Accumulated other comprehensive income (loss) ..................................... 8,357 (3,334) ------------- ------------ TOTAL SHAREHOLDERS' EQUITY ..................................................... 67,984 51,695 ------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 1,238,220 $ 1,151,881 ============= ============ </Table> The accompanying notes are an integral part of these consolidated financial statements. 1
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, ------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Interest income Loans ................................................. $ 10,021 $ 9,480 $ 30,667 $ 26,282 Investment securities ................................. 1,625 2,460 5,208 7,836 Mortgage-backed and related securities ................ 7,167 6,888 22,813 19,706 Other interest earning assets ......................... 214 354 825 1,404 ---------- ---------- ---------- ---------- Total interest income ............................. 19,027 19,182 59,513 55,228 Interest expense Time and savings deposits ............................. 5,869 6,515 19,873 16,927 Short-term obligations ................................ 2,018 2,327 6,019 7,314 Long-term obligations ................................. 3,796 3,245 11,380 8,938 ---------- ---------- ---------- ---------- Total interest expense ............................ 11,683 12,087 37,272 33,179 ---------- ---------- ---------- ---------- Net interest income ...................................... 7,344 7,095 22,241 22,049 Provision for loan losses ................................ 454 385 1,214 1,168 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses ...... 6,890 6,710 21,027 20,881 ---------- ---------- ---------- ---------- Noninterest income Deposit services ...................................... 2,318 1,946 6,868 5,952 Gain (loss) on sales of securities available for sale . 637 (67) 2,954 (526) Other ................................................. 866 749 2,276 1,912 ---------- ---------- ---------- ---------- Total noninterest income .......................... 3,821 2,628 12,098 7,338 ---------- ---------- ---------- ---------- Noninterest expense Salaries and employee benefits ........................ 4,366 3,764 13,003 11,387 Net occupancy expense ................................. 939 791 2,498 2,181 Equipment expense ..................................... 194 171 563 482 Advertising, travel & entertainment ................... 357 394 1,269 1,175 Supplies .............................................. 128 145 454 426 Other ................................................. 1,309 1,119 3,997 3,263 ---------- ---------- ---------- ---------- Total noninterest expense ......................... 7,293 6,384 21,784 18,914 ---------- ---------- ---------- ---------- Income before federal tax expense ........................ 3,418 2,954 11,341 9,305 Provision for federal tax expense ........................ 629 592 2,490 2,032 ---------- ---------- ---------- ---------- Income before cumulative effect of change in accounting principle ........................................ 2,789 2,362 8,851 7,273 Cumulative effect of change in accounting principle, net of tax ...................................... -- -- (994) -- ---------- ---------- ---------- ---------- Net Income ............................................... $ 2,789 $ 2,362 $ 7,857 $ 7,273 ========== ========== ========== ========== Earnings Per Common Share: Basic: Income before cumulative effect of change in accounting principle ..................... $ 0.36 $ 0.30 $ 1.13 $ 0.91 Net income .......................................... $ 0.36 $ 0.30 $ 1.00 $ 0.91 Diluted: Income before cumulative effect of change in accounting principle .................... $ 0.30 $ 0.29 $ 0.97 $ 0.89 Net income .......................................... $ 0.30 $ 0.29 $ 0.87 $ 0.89 </Table> The accompanying notes are an integral part of these consolidated financial statements. 2
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (in thousands, except per share amounts) <Table> <Caption> Other Compre- Accumulated Share- Compre- hensive Total holders' hensive Common Paid in Retained Treasury Income Equity Income Stock Capital Earnings Stock (Loss) --------- --------- --------- --------- --------- --------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000................ $ $ 10,269 $ 30,226 $ 19,891 $ (5,357) $ (3,334) $ 51,695 Net Income.................................. 7,857 7,857 7,857 Other comprehensive income, net of tax Unrealized gains on securities, net of reclassification adjustment (see Note 3).................................. 11,691 11,691 11,691 --------- Comprehensive income........................ $ 19,548 ========= Common stock issued (106,716 shares)........ 133 497 630 Dividends paid on common stock.............. (1,343) (1,343) Purchase of 270,500 shares of Treasury stock............................ (2,615) (2,615) Tax benefit of incentive stock options...... 69 69 Stock dividend declared..................... 468 4,131 (4,599) --------- --------- --------- --------- --------- ----------- Balance at September 30, 2001............... $ 10,870 $ 34,923 $ 21,806 $ (7,972) $ 8,357 $ 67,984 ========= =========- ========== ========= ========= =========== Balance at December 31, 1999................ $ -- $ 9,748 $ 27,472 $ 14,583 $ (4,544) $ (9,587) $ 37,672 Net Income.................................. 7,273 7,273 7,273 Other comprehensive income, net of tax Unrealized gains on securities, net of reclassification adjustment (see Note 3).................................. 2,462 2,462 2,462 --------- Comprehensive income........................ $ 9,735 ========= Common stock issued (37,195 shares)......... 46 240 286 Dividends paid on common stock.............. (1,089) (1,089) Purchase of 79,050 shares of Treasury stock............................ (694) (694) Tax benefit of incentive stock options...... 6 6 --------- --------- --------- --------- --------- ----------- Balance at September 30, 2000............... $ 9,794 $ 27,718 $ 20,767 $ (5,238) $ (7,125) $ 45,916 ========= ========= ========= ========= ========= =========== </Table> The accompanying notes are an integral part of these consolidated financial statements. 3
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (in thousands) <Table> <Caption> Nine Months Ended September 30, -------------------------- 2001 2000 ---------- ---------- <S> <C> <C> OPERATING ACTIVITIES: Net income ............................................................... $ 7,857 $ 7,273 Adjustments to reconcile net cash provided by operations: Depreciation ............................................................ 1,419 1,270 Amortization of premium ................................................. 5,356 1,116 Accretion of discount and loan fee ...................................... (1,161) (1,550) Provision for loan losses ............................................... 1,214 1,168 Tax benefit of incentive stock options .................................. 69 6 Decrease (increase) in interest receivable .............................. 770 (33) Increase in other receivables and prepaid expenses ...................... (2,180) (592) Increase in deferred tax asset .......................................... (259) (57) Increase in interest payable ............................................ 218 802 Increase in other payables .............................................. 12,459 5,270 Gain on sale of premises and equipment .................................. (12) -- Gain on sale of other real estate owned ................................. (4) -- (Gain) loss on sales of securities ...................................... (2,954) 526 Cumulative effect of change in accounting principle ..................... 994 -- Proceeds from sales of trading securities ............................... 99,595 -- ---------- ---------- Net cash provided by operating activities ............................. 123,381 15,199 INVESTING ACTIVITIES: Proceeds from sales of investment securities available for sale .......... 66,001 79,400 Proceeds from sales of mortgage-backed securities available for sale ..... 120,451 178,813 Proceeds from maturities of investment securities available for sale ..... 58,494 2,810 Proceeds from maturities of mortgage-backed securities available for sale 118,897 27,265 Proceeds from maturities of investment securities held to maturity ....... -- 450 Proceeds from maturities of mortgage-backed securities held to maturity .. -- 3,963 Purchases of investment securities available for sale .................... (153,408) (51,198) Purchases of mortgage-backed securities available for sale ............... (344,884) (245,504) Purchases of investment securities held to maturity ...................... -- (3,829) Purchases of mortgage-backed securities held to maturity ................. -- (3,110) Purchases of marketable equity securities available for sale ............. (870) (1,360) Net increase in loans .................................................... (44,997) (81,521) Purchases of premises and equipment ...................................... (1,458) (3,810) Proceeds from sale of premises and equipment ............................. 26 -- Proceeds from sale of other real estate owned ............................ 12 -- Proceeds from sales of repossessed assets ................................ 975 741 ---------- ---------- Net cash used in investing activities ................................. (180,761) (96,890) </Table> The accompanying notes are an integral part of these consolidated financial statements. 4
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (continued) (UNAUDITED) (in thousands) <Table> <Caption> Nine Months Ended September 30, -------------------------- 2001 2000 ---------- ---------- <S> <C> <C> FINANCING ACTIVITIES: Net increase in demand and savings accounts ................................ $ 8,487 $ 4,210 Net increase in certificates of deposit .................................... 190 75,980 Net increase in federal funds purchased .................................... 400 14,925 Net increase (decrease) in FHLB Dallas advances ............................ 45,455 (21,460) Proceeds from the issuance of common stock ................................. 630 286 Purchase of treasury stock ................................................. (2,615) (694) Dividends paid ............................................................. (1,343) (1,089) ---------- ---------- Net cash provided by financing activities ............................. 51,204 72,158 Net decrease in cash and cash equivalents ................................... (6,176) (9,533) Cash and cash equivalents at beginning of period ............................ 38,800 41,131 ---------- ---------- Cash and cash equivalents at end of period .................................. $ 32,624 $ 31,598 ========== ========== SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION: Interest paid .............................................................. $ 37,054 $ 32,377 Income taxes paid .......................................................... $ 1,875 $ 2,000 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of other repossessed assets and real estate through foreclosure $ 1,270 $ 641 Transfer of held to maturity securities to trading securities .............. $ 99,792 $ -- </Table> The accompanying notes are an integral part of these consolidated financial statements. 5
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The consolidated balance sheet as of September 30, 2001, and the related consolidated statements of income for the three and nine month periods ending September 30, 2001, and the statements of shareholders' equity and cash flows for the nine month periods ended September 30, 2001 and 2000 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. All share data has been adjusted to give retroactive recognition to stock splits and stock dividends. 2. Earnings Per Share Earnings per share on a basic and diluted basis as required by Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS128), has been adjusted to give retroactive recognition to stock splits and stock dividends and is calculated as follows (in thousands, except per share amounts): <Table> <Caption> Nine Months Ended September 30, -------------------------- 2001 2000 ---------- ---------- <S> <C> <C> Basic Earnings and Shares: Income before effect of accounting change ........... $ 8,851 $ 7,273 Effect of change in accounting principle ............ (994) -- ---------- ---------- Net income .......................................... $ 7,857 $ 7,273 ========== ========== Weighted-average basic shares outstanding ........... 7,858 7,995 ========== ========== Basic Earnings Per Share: Income before effect of accounting change ........... $ 1.13 $ 0.91 Effect of change in accounting principle ............ (0.13) -- ---------- ---------- Net income .......................................... $ 1.00 $ 0.91 ========== ========== Diluted Earnings and Shares: Income before effect of accounting change ........... $ 8,851 $ 7,273 Add: Applicable dividend on convertible debentures .. 734 -- ---------- ---------- Adjusted net income ................................. 9,585 7,273 Effect of change in accounting principle ............ (994) -- ---------- ---------- Net income .......................................... $ 8,591 $ 7,273 ========== ========== Weighted-average basic shares outstanding ........... 7,858 7,995 Add: Stock options .................................. 378 209 Convertible debentures .................... 1,695 -- ---------- ---------- Weighted-average diluted shares outstanding ......... 9,931 8,204 ========== ========== Diluted Earnings Per Share: Income before effect of accounting change ........... $ 0.97 $ 0.89 Effect of change in accounting principle ............ (0.10) -- ---------- ---------- Net income .......................................... $ 0.87 $ 0.89 ========== ========== </Table> The accompanying notes are an integral part of these consolidated financial statements. 6
3. Comprehensive Income The components of accumulated comprehensive income as required by Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" are as follows: <Table> <Caption> Nine Months Ended September 30, 2001 --------------------------------------------- Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount ---------- ------------- ---------- <S> <C> <C> <C> Unrealized gains on securities: Unrealized holding gains arising during period .. $ 19,162 $ (6,515) $ 12,647 Less: reclassification adjustment for gains included in net income ..................... 2,954 (1,004) 1,950 ---------- ------------- ---------- Net unrealized gains on securities ............. 16,208 (5,511) 10,697 Less: cumulative effect of change in accounting principle ....................... (1,506) 512 (994) ---------- ------------- ---------- Other comprehensive income ......................... $ 17,714 $ (6,023) $ 11,691 ========== ============= ========== </Table> <Table> <Caption> Quarter Ended September 30, 2001 --------------------------------------------- Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount ---------- ------------- ---------- <S> <C> <C> <C> Unrealized gains on securities: Unrealized holding gains arising during period.... $ 7,654 $ (2,602) $ 5,052 Less: reclassification adjustment for gains included in net income....................... 637 (216) 421 ---------- ------------- ---------- Net unrealized gains on securities............... 7,017 (2,386) 4,631 ---------- ------------- ---------- Other comprehensive income........................... $ 7,017 $ (2,386) $ 4,631 ========== ============= ========== </Table> <Table> <Caption> Nine Months Ended September 30, 2000 --------------------------------------------- Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount ---------- ------------- ---------- <S> <C> <C> <C> Unrealized gains on securities: Unrealized holding gains arising during period.... $ 3,205 $ (1,090) $ 2,115 Less: reclassification adjustment for losses included in net income........................ (526) 179 (347) ---------- ------------- ---------- Net unrealized gains on securities............... 3,731 (1,269) 2,462 ---------- ------------- ---------- Other comprehensive income........................... $ 3,731 $ (1,269) $ 2,462 ========== ============= ========== </Table> <Table> <Caption> Quarter Ended September 30, 2000 --------------------------------------------- Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount ---------- ------------- ---------- <S> <C> <C> <C> Unrealized gains on securities: Unrealized holding gains arising during period.... $ 1,579 $ (537) $ 1,042 Less: reclassification adjustment for losses included in net income........................ (67) 23 (44) ---------- ------------- ---------- Net unrealized gains on securities............... 1,646 (560) 1,086 ---------- ------------- ---------- Other comprehensive income........................... $ 1,646 $ (560) $ 1,086 ========== ============= ========== </Table> 7
4. Recent Accounting Pronouncements On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS133). FAS133 and its amendments are effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. FAS133 requires that all derivative instruments be recorded on the balance sheet 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. In June 2000, the Financial Accounting Standards Board issued Financial Accounting Standards No. 138, "Accounting for Derivative Instruments and Hedging Activities, an Amendment of Financial Accounting Standards Board Statement No. 133," which addresses a limited number of issues causing implementation difficulties for numerous entities that apply Financial Accounting Standards No. 133, as amended. Financial Accounting Standards No. 138 amends the accounting and reporting standards of Financial Accounting Standards No. 133, as amended, for certain derivative instruments, certain hedging activities and for decisions made by the Financial Accounting Standards Board relating to the Derivatives Implementation Group process. On January 1, 2001, Southside adopted Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS133). As allowed by FAS133, at the date of initial application of this statement, Southside transferred held to maturity securities with an amortized cost of $155.2 million into the available for sale category. In addition, Southside transferred held to maturity securities with an amortized cost of $99.8 million and a market value of $98.3 million into the trading category. The effect of adopting FAS133 is shown as a cumulative effect of a change in accounting principle and reduced net income by $994,000 (net of taxes) during the first quarter of 2001. Southside sold the securities transferred into the trading category along with previously existing available for sale securities which resulted in realized gains of $3.0 million or an after tax gain of $1.9 million. These separate transactions allowed Southside to reduce the overall duration of and reposition the securities portfolio. In September 2000, the Financial Accounting Standards Board issued Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of Financial Accounting Standards Board Statement No. 125," which revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but, it carries over most of Financial Accounting Standards No. 125's provisions without reconsideration. The statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. It is effective for disclosures about securitizations and collateral and for the recognition and reclassification of collateral for fiscal years ending after December 15, 2000. The adoption of financial Accounting Standards No. 140 did not have a significant effect on the Company's results of operations or its financial position. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Nine months ended September 30, 2001 compared to September 30, 2000. 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, 2001 compared to the same period in 2000. Net income for the quarter and nine months ended September 30, 2001 was $2.8 million and $7.9 million compared to $2.4 million and $7.3 million for the same period in 2000. All share data has been adjusted to give retroactive recognition to stock splits and stock dividends. Net Interest Income Net interest income for the nine months ended September 30, 2001 was $22.2 million, an increase of $192,000 or 0.9% for the nine months when compared to the same period in 2000. Average interest earning assets increased $157.7 million or 16.1%, while the net interest spread decreased from 2.57% at September 30, 2000 to 2.12% at September 30, 2001 and the net margin decreased from 3.30% at September 30, 2000 to 2.89% at September 30, 2001. The decrease in net interest spread is the result of several factors including higher interest expense associated with brokered CDs issued during the second quarter ended June 30, 2000 and $556,000 of additional interest expense associated with calling the brokered CDs during the first six months ended June 30, 2001. In addition, interest expense associated with the trust preferred securities issued November 2, 2000 contributed to the decrease in net interest spread. Significantly lower interest rates have also contributed to the lower net interest spread. During the nine months ended September 30, 2000, Average Loans, funded primarily by the growth in average deposits, increased $82.8 million or 19.7%, compared to the same period in 2000. The average yield on loans decreased slightly from 8.45% at September 30, 2000 to 8.33% at September 30, 2001. The decrease in yield on average loans is a direct result of the significant decrease in the prime interest rate combined with the repricing of specific bank loan relationships to current market levels. Average Securities increased $73.9 million or 13.8% for the nine months ended September 30, 2001 when compared to the same period in 2000. This increase was a direct result of the leverage strategy implemented in 1998. The overall yield on Average Securities decreased to 6.50% during the nine months ended September 30, 2001 from 7.32% during the same period in 2000. The decrease is reflective of overall lower interest rates, increased prepayment speeds on mortgage-backed securities which led to increased amortization expense and a restructuring of a portion of the securities portfolio in an effort to continue to lower the overall portfolio duration as interest rates decline. Interest income from federal funds and other interest earning assets decreased $579,000 or 41.2% for the nine months ended September 30, 2001 when compared to 2000 as a result of the decrease in the average yield from 8.23% in 2000 to 4.62% at September 30, 2001. The decrease is due to lower interest rates and a special FHLB Dallas dividend of $300,000 received on the FHLB Dallas stock the Company owns in the second quarter of 2000. Total interest expense increased $4.1 million or 12.3% to $37.3 million during the nine months ended September 30, 2001 as compared to $33.2 million during the same period in 2000. The increase was attributable to an increase in Average Interest Bearing Liabilities of $126.0 million or 15.0% which more than offset the decrease in the average yield on interest bearing liabilities from 5.26% at September 30, 2000 to 5.15% at September 30, 2001. Average Interest Bearing Deposits increased $72.7 million or 15.3% while the average rate paid increased from 4.74% at September 30, 2000 to 4.84% at September 30, 2001, which is due in part to the higher cost of the brokered CDs called during the second quarter ended June 30, 2001 and the Company's Platinum Money Market account introduced during the second quarter of 2000. During the second quarter ended June 30, 2000, the Company issued $54.6 million of long-term brokered CD's with one-year continuous discrete call options. The average yield on these CD's was approximately 8.19% with an average life of approximately 10.8 years. Obtaining this long-term funding enabled the Bank to take advantage of 9
the higher interest rate environment, primarily through the purchase of securities without incurring additional interest rate risk. The higher cost associated with these callable CD's had a negative impact on the Company's net interest spread during the last six quarters ending September 30, 2001. During April and May of 2001, the Company completed the call of $54.6 million of brokered CDs. The Company recorded additional interest expense associated with the CDs of $556,000 and $361,000 for the six months and quarter ended June 30, 2001, respectively. These long-term callable brokered CDs had an average yield of approximately 8.19% and were replaced with long-term advances from the FHLB Dallas at an average yield of approximately 5.40% and an average life of approximately 4.65 years at June 30, 2001. As a result, the Company's interest expense on this $54.6 million has declined. During the second quarter of 2000, the Bank introduced a new Platinum Money Market deposit account. This account pays a higher rate on larger deposit balances than the Bank's other money market account. As deposits shift to the new money market account, the higher interest cost associated with this change will have a negative impact on the Company's net interest margin. Average Short-term Interest Bearing Liabilities, consisting primarily of FHLB Dallas advances and Federal Funds Purchased, increased $15.0 million or 9.4% as compared to the same period in 2000. Average Long-term Interest Bearing Liabilities consisting of FHLB Dallas advances increased $21.3 million or 11.4% compared to $207.7 million at September 30, 2000. The advances were obtained from FHLB Dallas as part of the Company's balance sheet leverage strategy and partially to fund long-term loans. FHLB Dallas advances are collateralized by FHLB Dallas stock, securities and nonspecified real estate loans. The Company's plan is to gradually reduce the percentage of short-term FHLB Dallas advances, as a percent of total funding, with deposit growth and long-term FHLB advances. As loan growth occurs, the loan portfolio should gradually increase as a percent of total assets while the securities portfolio as a percentage of assets should decline. Average Long-Term Junior Subordinated Convertible Debentures were $17.0 million for the nine months ended September 30, 2001 compared to zero for the same period in 2000. The increase is a result of the sale of 1,695,000 Convertible Preferred Securities on November 2, 2000 at a liquidation amount of $10 per Convertible Preferred Security for an aggregate amount of $16,950,000. The debentures have a distribution rate of 8.75% per annum payable at the end of each calendar quarter. Average Long Term Junior Subordinated Debentures remained the same at $20 million from September 30, 2000 to September 30, 2001. 10
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 AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD BALANCE INTEREST YIELD ----------- ----------- ----------- ----------- ----------- --------- (dollars in thousands) Nine Months Ended September 30, 2001 Nine Months Ended September 30, 2000 ------------------------------------------- --------------------------------------- <S> <C> <C> <C> <C> <C> <C> INTEREST EARNING ASSETS: Loans (1)(2) ................... $ 503,507 $ 31,372 8.33% $ 420,749 $ 26,609 8.45% Investment Securities (3)(4) ... 129,476 6,768 6.99% 169,846 9,586 7.54% Mortgage-backed Securities (4) . 478,819 22,813 6.37% 364,595 19,706 7.22% Other Interest Earning Assets ....................... 23,872 825 4.62% 22,785 1,404 8.23% ----------- ----------- ----------- ----------- TOTAL INTEREST EARNING ASSETS .......................... 1,135,674 61,778 7.27% 977,975 57,305 7.83% ----------- ----------- NONINTEREST EARNING ASSETS: Cash and Due from Banks ......... 33,129 31,477 Bank Premises and Equipment ..... 25,489 21,319 Other Assets .................... 19,142 16,775 Less: Reserve for Loan Loss .. (5,491) (4,903) ----------- ----------- TOTAL ASSETS .................... $ 1,207,943 $ 1,042,643 =========== =========== INTEREST BEARING LIABILITIES: Deposits ....................... $ 549,415 19,873 4.84% $ 476,706 16,927 4.74% Fed Funds Purchased and Other Interest Bearing Liabilities ................... 5,298 176 4.44% 5,007 225 6.00% Short Term Interest Bearing Liabilities - FHLB Dallas ..... 168,600 5,843 4.63% 153,907 7,089 6.15% Long Term Interest Bearing Liabilities - FHLB Dallas ..... 207,746 8,993 5.79% 186,428 7,663 5.49% Long Term Junior Subordinated Convertible Debentures ........ 16,950 1,112 8.75% -- -- Long Term Junior Subordinated Debentures ...... 20,000 1,275 8.50% 20,000 1,275 8.50% ----------- ----------- ----------- ----------- TOTAL INTEREST BEARING LIABILITIES ..................... 968,009 37,272 5.15% 842,048 33,179 5.26% ----------- ----------- NONINTEREST BEARING LIABILITIES Demand Deposits ................. 164,689 149,564 Other Liabilities ............... 14,889 10,292 ----------- ----------- Total Liabilities ............... 1,147,587 1,001,904 SHAREHOLDERS' EQUITY ............ 60,356 40,739 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 1,207,943 $ 1,042,643 =========== =========== NET INTEREST INCOME ............. $ 24,506 $ 24,126 =========== =========== NET MARGIN ON AVERAGE EARNING ASSETS .................. 2.89% 3.30% ===== ===== NET INTEREST SPREAD ............. 2.12% 2.57% ===== ===== </Table> (1) Loans are shown net of unearned discount. Interest on loans includes fees on loans which are not material in amount. (2) Interest income includes taxable-equivalent adjustments of $705 and $327 as of September 30, 2001 and 2000, respectively. (3) Interest income includes taxable-equivalent adjustments of $1,560 and $1,750 as of September 30, 2001 and 2000, respectively. (4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost. 11
Noninterest Income Noninterest income was $12.1 million for the nine months ended September 30, 2001 compared to $7.3 million for the same period in 2000. Deposit services income increased $916,000 or 15.4% for the nine months ended September 30, 2001. Deposit services income increased primarily as a direct result of the overdraft privilege program and also due to increased numbers of deposit accounts and increased deposit activity from September 30, 2000 to September 30, 2001. Other noninterest income increased $364,000 or 19.0% for the nine months ended September 30, 2001 primarily as a result of increases in trust income and mortgage servicing release fees income. During the nine months ended September 30, 2001, the Company had gains on the sale of securities of $3.0 million compared to losses on the sales of securities of $526,000 for the same period in 2000. On January 1, 2001, Southside adopted Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS133). As allowed by FAS133, at the date of initial application of this statement, Southside transferred held to maturity securities with an amortized cost of $155.2 million into the available for sale category. In addition, Southside transferred held to maturity securities with an amortized cost of $99.8 million and a market value of $98.3 million into the trading category. The effect of adopting FAS133 is shown as a cumulative effect of a change in accounting principle and reduced net income by $994,000 (net of taxes) during the first quarter of 2001. Southside sold the securities transferred into the trading category along with previously existing available for sale securities which resulted in realized gains of $3.0 million or an after tax gain of $1.9 million. These separate transactions allowed Southside to reduce the overall duration of and reposition the securities portfolio. The market value of the entire securities portfolio at September 30, 2001 was $645.0 million with a net unrealized gain on that date of $12.8 million. The net unrealized gain is comprised of $13.4 million in unrealized gains and $0.6 million in unrealized losses. Noninterest Expense Noninterest expense was $21.8 million for the nine months ended September 30, 2001, compared to $18.9 million for the same period of 2000, representing an increase of $2.9 million or 15.2%. Salaries and employee benefits increased $1.6 million or 14.2% during the nine months ended September 30, 2001 when compared to the same period in 2000. Direct salary expense and payroll taxes increased $897,000 or 9.4% as a result of personnel additions for the nine months ended September 30, 2001 when compared to the same period in 2000. Branch expansion combined with overall bank growth and normal payroll increases accounted for this increase. Retirement expense increased $571,000 or 124.1% for the nine months ended September 30, 2001 when compared to the same period in 2000, primarily as a result of the number of participants, the level of performance of retirement plan assets and actuarial computations. Health, life and other employee related insurance expense increased $149,000 or 10.5% for the nine months ended September 30, 2001 when compared to the same period in 2000. The Company has a self-insured health plan which is supplemented with stop loss insurance policies. Net occupancy expense increased $317,000 or 14.5% for the nine months ended September 30, 2001 compared to the same period in 2000, largely due to branch expansion, depreciation expense and higher real estate taxes. Equipment expense increased $81,000 or 16.8% for the nine months ended September 30, 2001 compared to the same period in 2000 due to additional locations, equipment and increased maintenance costs. Advertising, travel and entertainment expense increased $94,000 or 8.0% for the nine months ended September 30, 2001 compared to the same period in 2000 due to an increased advertising budget and additional expenses associated with additional locations and growth in assets. Other expense increased $734,000 or 22.5% for the nine months ended September 30, 2001 compared to the same period in 2000 primarily due to increases in professional fees, dues to directors, bank analysis fees, trust expense and ATM fees. 12
Provision for Income Taxes The provision for the income tax expense for the nine months ended September 30, 2001 was 22.0% compared to 21.8% for the nine months ended September 30, 2000. The increase in the effective tax rate and income tax expense is due to the increase in pre-tax income as a result of securities gains for the nine months ended September 30, 2001. Capital Resources Total shareholders' equity for the Company at September 30, 2001, of $68.0 million was up $16.3 million from December 31, 2000, and represented 5.5% of total assets at September 30, 2001 compared to 4.5% of total assets at December 31, 2000. Increases to shareholders' equity during the nine months ended September 30, 2001 were net income of $7.9 million and common stock (106,716 shares) issued through the Company's dividend reinvestment and incentive stock option plans of $630,000 and an increase of $11.7 million in net unrealized gains on securities available for sale. Decreases to shareholders' equity consisted of $1,343,000 in dividends paid to shareholders and the purchase of 270,500 shares of the Company's stock for $2.6 million. 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. A portion of the $20 million trust preferred securities is considered Tier 1 capital by the Federal Reserve Bank. 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 four percent for bank holding companies that meet certain specified criteria. Failure to meet minimum capital regulations can initiate certain mandatory and possibly additional discretionary actions by regulation, that if undertaken, could have a direct material effect on the Bank's financial statements. At September 30, 2001, the Company and the 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 the Bank not exceed earnings for that year. Liquidity and Interest Rate Sensitivity Liquidity management involves the ability to convert assets to cash with a minimum of loss. The Company must be capable of meeting its obligations to its customers at any time. This means addressing (1) the immediate cash withdrawal requirements of depositors and other funds providers; (2) the funding requirements of all lines and letters of credit; and (3) the short-term credit needs of customers. Liquidity is provided by short-term investments that can be readily liquidated with a minimum risk of loss. Cash, Interest Earning Deposits, Federal Funds Sold and short-term investments with maturities or repricing characteristics of one year or less continue to be a substantial percentage of total assets. At September 30, 2001, these investments were 16.6% of Total Assets. Liquidity is further provided through the matching, by time period, of rate sensitive interest earning assets with rate sensitive interest bearing liabilities. The Company has three lines of credit for the purchase of federal funds. Two $15.0 million and one $10.0 million unsecured lines of credit have been established with Bank of America, Frost Bank and Texas Independent Bank, respectively. 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. The Asset Liability Management Committee of the Bank closely monitors various liquidity ratios, interest rate spreads and margins, interest rate shock reports and market value of portfolio equity (MVPE) with rates shocked plus and minus 200 basis points to ensure a satisfactory liquidity position for the Company. In addition, the Bank utilizes a simulation model to determine the impact of net interest income under several different interest rate 13
scenarios. By utilizing this technology, the Bank can determine changes that need to be made to the asset and liability mixes to minimize the change in net interest income under these various interest rate scenarios. On November 8, 2000, the Company through Southside Capital Trust II sold 1,695,000 shares of Convertible Preferred Securities at a liquidation amount of $10 per Convertible Preferred Security for an aggregate amount of $16,950,000. The debentures have a distribution rate of 8.75% per annum payable at the end of each calendar quarter and have a conversion feature to the Company's common stock at $10 per share. The proceeds received by the Company from the Trust Issuer continue to be used for general corporate purposes, including, but not limited to, capital contributions to the Bank to support growth, for working capital, the possible repurchase of shares of our common stock and acquisitions by the Company. Composition of Loans The Company's main objective is to seek attractive lending opportunities in East Texas and adjoining counties. Total Average Loans increased $82.8 million or 19.7% from the nine months ended September 30, 2000 to September 30, 2001. The majority of the increase is in Real Estate Loans and Loans to Municipalities in the state of Texas. The increase in Real Estate Loans is due to a stronger real estate market, lower interest rates and a strong commitment in residential mortgage lending. The increase in Loans to Municipalities is reflective of the Company's continued effort to penetrate this market. 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 the 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. For the third quarter and nine months ended September 30, 2001, loan charge-offs were $421,000 and $1,028,000 and recoveries were $103,000 and $539,000, respectively, resulting in net charge-offs of $318,000 and $489,000. For the third quarter and nine months ended September 30, 2000, loan charge-offs were $560,000 and $992,000 and recoveries were $70,000 and $228,000, respectively, resulting in net charge-offs of $490,000 and $764,000. Net charge-offs decreased for the nine months ended September 30, 2001. As a result of this and other factors, the necessary provision expense was estimated at $1,214,000 for the nine months ended September 30, 2001. 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 14
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 three commercial real estate properties and two residential real estate properties. The Company is actively marketing all properties and none are being held for investment purposes. Total nonperforming assets at September 30, 2001 were $2,610,000, up $133,000 or 5.4% from $2,477,000 at December 31, 2000. Loans 90 days past due or more decreased $275,000 or 22.6% to $944,000. Of this total, 43% are collateralized by residential dwellings that are primarily owner occupied. Historically, the amount of losses suffered on this type of loan have been less than those on other properties. Twelve percent are construction and land development loans, 4% are nonfarm nonresidential real estate loans, 29% are commercial loans and 12% are loans to individuals. Restructured loans decreased $42,000 or 10.8% to $347,000. From December 31, 2000 to September 30, 2001, nonaccrual loans increased $162,000 or 25.7% to $792,000. Repossessed assets increased $44,000 or 22.4%. Other real estate increased $244,000 or 567.4% from $43,000 at December 31, 2000 to $287,000 at September 30, 2001. Expansion During the next six months Southside plans to open four new full service branches. Three of the full service branches will be located in grocery stores in Longview, Whitehouse and Tyler. The fourth full service branch will be located in the city of Whitehouse in a high growth area of southern Smith County. Recent Accounting Pronouncements On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS133). FAS133 and its amendments are effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. FAS133 requires that all derivative instruments be recorded on the balance sheet 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. In June 2000, the Financial Accounting Standards Board issued Financial Accounting Standards No. 138, "Accounting for Derivative Instruments and Hedging Activities, an Amendment of Financial Accounting Standards Board Statement No. 133," which addresses a limited number of issues causing implementation difficulties for numerous entities that apply Financial Accounting Standards No. 133, as amended. Financial Accounting Standards No. 138 amends the accounting and reporting standards of Financial Accounting Standards No. 133, as amended, for certain derivative instruments, certain hedging activities and for decisions made by the Financial Accounting Standards Board relating to the Derivatives Implementation Group process. On January 1, 2001, Southside adopted Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS133). As allowed by FAS133, at the date of initial application of this statement, Southside transferred held to maturity securities with an amortized cost of $155.2 million into the available for sale category. In addition, Southside transferred held to maturity securities with an amortized cost of $99.8 million and a market value of $98.3 million into the trading category. The effect of adopting FAS133 is shown as a cumulative effect of a change in accounting principle and reduced net income by $994,000 (net of taxes) during the first quarter of 2001. Southside sold the securities transferred into the trading category along with previously existing available for sale securities which resulted in realized gains of $3.0 million or an after tax gain of $1.9 million. These separate transactions allowed Southside to reduce the overall duration of and reposition the securities portfolio. In September 2000, the Financial Accounting Standards Board issued Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of Financial Accounting Standards Board Statement No. 125," which revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but, it carries over most of Financial Accounting Standards No. 125's provisions without reconsideration. The statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 15
2001. It is effective for disclosures about securitizations and collateral and for the recognition and reclassification of collateral for fiscal years ending after December 15, 2000. The adoption of financial Accounting Standards No. 140 did not have a significant effect on the Company's results of operations or its financial position. 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 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 and may impact prepayments on the mortgage-backed securities portfolio, changes effecting the leverage strategy, 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes since December 31, 2000. See Form 10-K, Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 16
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to certain litigation that it considers routine and incidental to its business. Management does not expect the results of any of these actions to have a material effect on the Company's business, results of operations or financial condition. 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 - None (b) Reports on Form 8-K - None 17
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: November 6, 2001 -------------------- /s/ LEE R. GIBSON ------------------------------------- Lee R. Gibson, Executive Vice President (Principal Financial and Accounting Officer) DATE: November 6, 2001 -------------------- 18