1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 ---------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to ------ ------- 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 3,320,654 shares of Common Stock, par value $2.50, outstanding at April 21, 1997.
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts) <TABLE> <CAPTION> March 31, December 31, 1997 1996 ------------ ------------ <S> <C> <C> ASSETS Cash and due from banks ............................................ $ 25,893 $ 31,653 Investment securities: Available for sale .............................................. 69,402 56,091 Held to maturity ................................................ 1,063 1,734 ------------ ------------ Total Investment securities ................................... 70,465 57,825 Mortgage-backed and related securities: Available for sale .............................................. 93,666 90,574 Held to maturity ................................................ 21,059 23,782 ------------ ------------ Total Mortgage-backed securities .............................. 114,725 114,356 Marketable equity securities: Available for sale .............................................. 2,248 2,220 Loans: Loans, net of unearned discount ................................. 262,439 258,167 Less: Reserve for loan losses .................................. (3,312) (3,249) ------------ ------------ Net Loans ..................................................... 259,127 254,918 Premises and equipment, net ........................................ 13,673 13,695 Other real estate owned, net ....................................... 273 273 Interest receivable ................................................ 3,119 3,300 Deferred tax asset ................................................. 906 464 Other assets ....................................................... 4,966 3,990 ------------ ------------ TOTAL ASSETS .................................................. $ 495,395 $ 482,694 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing ............................................. $ 94,878 $ 98,901 Interest bearing ................................................ 334,490 327,049 ------------ ------------ Total Deposits ................................................ 429,368 425,950 Short-term obligations: Securities sold under agreement to repurchase ................... 8,976 Federal funds purchased ......................................... 3,250 4,800 Long-term obligations: Note payable - FHLB Dallas ...................................... 8,721 9,096 Other liabilities .................................................. 8,728 6,244 ------------ ------------ TOTAL LIABILITIES ............................................. 459,043 446,090 ------------ ------------ Shareholders' equity: Common stock: ($2.50 par, 6,000,000 shares authorized, 3,320,654 and 3,316,127 shares issued and outstanding) ........ 8,301 8,290 Paid-in capital ................................................. 18,604 18,501 Retained earnings ............................................... 10,381 9,628 Treasury stock (80,757 and 62,986 shares at cost) ............... (1,164) (777) Net unrealized gains on securities available for sale ........... 230 962 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY ................................... 36,352 36,604 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 495,395 $ 482,694 ============ ============ </TABLE> The accompanying notes are an integral part of the financial statements. 1
3 SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1997 1996 ------ ------ <S> <C> <C> Interest income Loans ................................................... $5,543 $5,111 Investment securities ................................... 868 944 Mortgage-backed and related securities .................. 1,812 1,564 Other interest earning assets ........................... 44 71 ------ ------ Total interest income ............................... 8,267 7,690 Interest expense Time and savings deposits ............................... 3,480 3,256 Short-term obligations .................................. 124 42 Long-term obligations ................................... 127 185 ------ ------ Total interest expense .............................. 3,731 3,483 ------ ------ Net interest income ........................................ 4,536 4,207 Provision for loan losses .................................. 175 75 ------ ------ Net interest income after provision for loan losses ........ 4,361 4,132 ------ ------ Noninterest income Deposit services ........................................ 764 669 Gains on securities available for sale .................. 112 126 Other ................................................... 315 274 ------ ------ Total noninterest income ............................ 1,191 1,069 ------ ------ Noninterest expenses Salaries and employee benefits .......................... 2,541 2,357 Net occupancy expenses .................................. 491 412 Equipment expense ....................................... 100 75 Advertising, travel & entertainment ..................... 229 226 Supplies ................................................ 101 105 FDIC insurance .......................................... 12 1 Postage ................................................. 76 69 Other ................................................... 527 543 ------ ------ Total noninterest expense ........................... 4,077 3,788 ------ ------ Income before federal tax expense .......................... 1,475 1,413 Provision for tax expense .................................. 371 364 ------ ------ Net Income ................................................. $1,104 $1,049 ====== ====== Earnings Per Share Net Income ................................................. $ .34 $ .32 ====== ====== </TABLE> The accompanying notes are an integral part of the financial statements. 2
4 SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (in thousands) <TABLE> <CAPTION> Three Months Ended March 31, -------------------- 1997 1996 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: Net income .................................................................... $ 1,104 $ 1,049 Adjustments to reconcile net cash provided by operations: Depreciation and amortization ................................................ 608 503 Accretion of discount and loan fee ........................................... (237) (202) Provision for loan losses .................................................... 175 75 Decrease in interest receivable .............................................. 181 425 (Increase) in other receivables and prepaids ................................. (976) (476) (Increase) in deferred tax asset ............................................. (65) (38) Increase (decrease) in interest payable ...................................... 47 (15) (Gain) on sale of securities available for sale .............................. (112) (126) (Gain) on sale of assets ..................................................... (5) Increase (decrease) in other payables ........................................ 2,437 (2,939) -------- -------- Net cash provided by (used in) operating activities ........................ 3,162 (1,749) INVESTING ACTIVITIES: Proceeds from sales of investment securities available for sale ............... 5,597 3,451 Proceeds from sales of mortgage-backed securities available for sale .......... 7,476 16,004 Proceeds from maturities of investment securities available for sale .......... 2,782 19,602 Proceeds from maturities of mortgage-backed securities available for sale ..... 7,233 2,647 Proceeds from maturities of investment securities held to maturity ............ 677 474 Proceeds from maturities of mortgage-backed securities held to maturity ....... 2,757 2,518 Purchases of investment securities available for sale ......................... (22,174) (7,739) Purchases of mortgage-backed securities available for sale .................... (18,437) (27,366) Purchases of marketable equity securities available for sale .................. (28) (55) Net (increase) in federal funds sold .......................................... (3,675) Net (increase) in loans ....................................................... (4,623) (6,266) Purchases of premises and equipment ........................................... (267) (179) Proceeds from sales of premises and equipment ................................. 24 Proceeds from sales of repossessed assets ..................................... 240 337 -------- -------- Net cash (used in) investing activities .................................... (18,767) (223) </TABLE> The accompanying notes are an integral part of the financial statements. 3
5 SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (continued) (UNAUDITED) (in thousands) <TABLE> <CAPTION> Three Months Ended March 31, -------------------- 1997 1996 -------- -------- <S> <C> <C> FINANCING ACTIVITIES: Net increase in demand and savings accounts .......................... $ 132 $ 1,209 Net increase in certificates of deposit .............................. 3,286 6,172 Proceeds from the issuance of common stock ........................... 79 73 Net (decrease) in federal funds purchased ............................ (1,550) (3,700) Net increase in securities sold under agreement to repurchase ........ 8,976 Sale of treasury stock ............................................... 90 Purchase of treasury stock ........................................... (477) (121) Loss on sale of treasury stock ....................................... (28) FAS 109 - incentive stock options .................................... 35 Dividends paid ....................................................... (323) (309) Net (decrease) in notes payable ...................................... (375) (411) -------- -------- Net cash provided by financing activities ....................... 9,845 2,913 -------- -------- Net (decrease) increase in cash and cash equivalents .................. (5,760) 941 Cash and cash equivalents at beginning of period ...................... 31,653 26,321 -------- -------- Cash and cash equivalents at end of period ............................ $ 25,893 $ 27,262 ======== ======== SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION: Interest paid ........................................................ $ 3,778 $ 3,498 Income taxes paid .................................................... $ 75 $ 80 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of OREO and repossessed assets through foreclosure ....... $ 239 $ 411 </TABLE> The accompanying notes are an integral part of the financial statements. 4
6 SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (in thousands) <TABLE> <CAPTION> Net Unrealized Total Common Paid in Retained Treasury Gain Shareholders' Stock Capital Earnings Stock (Losses) Equity -------- -------- -------- -------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 1995 ........... $ 7,853 $ 16,209 $ 9,123 $ (486) $ 653 $ 33,352 Net Income ............................. 1,049 1,049 Cash dividend ($.10 per share) ......... (309) (309) Common stock issued (4,881 shares) ..... 12 61 73 Purchase of 8,027 shares of Treasury stock ........................ (121) (121) Net unrealized losses on securities available for sale (net of tax) ....... (631) (631) -------- -------- -------- -------- -------- -------- Balance at March 31, 1996 .............. $ 7,865 $ 16,270 $ 9,863 $ (607) $ 22 $ 33,413 ======== ======== ======== ======== ======== ======== Balance at December 31, 1996 ........... $ 8,290 $ 18,501 $ 9,628 $ (777) $ 962 $ 36,604 Net Income ............................. 1,104 1,104 Cash dividend ($.10 per share) ......... (323) (323) Common stock issued (4,527 shares) ..... 11 68 79 Purchase of 27,271 shares of Treasury stock ........................ (477) (477) Sale of 9,500 shares of Treasury stock ........................ (28) 90 62 Net unrealized losses on securities available for sale (net of tax) ....... (732) (732) FAS 109 - Incentive Stock Options ...... 35 35 -------- -------- -------- -------- -------- -------- Balance at March 31, 1997 .............. $ 8,301 $ 18,604 $ 10,381 $ (1,164) $ 230 $ 36,352 ======== ======== ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of the financial statements. 5
7 SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The consolidated balance sheet as of March 31, 1997, and the related consolidated statements of income, shareholders' equity and cash flow for the three month periods ended March 31, 1997 and 1996 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the financial statements and notes thereto in the Company's latest report on Form 10-K. 2. Earnings Per Share All per share data has been adjusted to give retroactive recognition to the effect of stock dividends. As of March 31, 1997 and 1996, the number of shares used to calculate earnings per share was 3,271,178 and 3,264,854, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). This statement, which the Company will be required to adopt in 1997, supersedes APB 15, "Earnings Per Share" and simplifies the computation of earnings per share (EPS) by replacing the "primary" EPS requirements of APB 15 with a "basic" EPS computation based upon weighted-average shares outstanding. The new standard requires a dual presentation of basic and diluted EPS. Diluted EPS is similar to fully diluted EPS required under APB 15 for entities with complex capital structures. As of March 31, 1997, the adoption of FAS 128 did not have an impact on the Company. 6
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Quarter ended March 31, 1997 compared to March 31, 1996. The following is a discussion of the consolidated financial condition, changes in financial condition, and results of operations of Southside Bancshares, Inc. (the "Company"), and should be read and reviewed in conjunction with the financial statements, and the notes thereto, in this presentation and in the Company's latest report on Form 10-K. The Company reported an increase in net income for the quarter ended March 31, 1997 compared to the same period in 1996. Net income for the quarter ended March 31, 1997 was $1,104,000 as compared to $1,049,000 for the same period in 1996. Net Interest Income Net interest income for the quarter ended March 31, 1997 was $4,536,000, an increase of $329,000 or 7.8% when compared to the same period in 1996. Average interest earning assets increased $31,323,000 or 7.7%, while the net interest spread remained unchanged at 3.5% at March 31, 1996 and March 31, 1997. During the three months ended March 31, 1997, Average Loans, funded primarily by the growth in average deposits, average fed funds purchased and average securities sold under agreements to repurchase increased $25,236,000 or 10.8%, compared to the same period in 1996. The average yield on loans decreased from 8.8% at March 31, 1996 to 8.7% at March 31, 1997. Average Securities increased $7,888,000 or 4.7% for the three months ended March 31, 1997 when compared to the same period in 1996. The overall yield on Average Securities increased to 6.7% during the three months ended March 31, 1997, from 6.5% during the same period in 1996. Interest income from federal funds and other interest earning assets decreased $27,000 or 38.0% for the three months ended March 31, 1997 when compared to 1996 as a result of the average balance decrease of 36.8%. The average yield remained the same at 5.8% in 1997 and 1996. Total interest expense increased $248,000 or 7.1% to $3,731,000 during the three months ended March 31, 1997 as compared to $3,483,000 during the same period in 1996. The increase was attributable to an increase in Average Interest Bearing Liabilities of $23,697,000 or 7.3% and a slight increase in the average yield on interest bearing liabilities from 4.3% in 1996 to 4.4% in 1997. 7
9 The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities. SUMMARY OF INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES <TABLE> <CAPTION> AVERAGE YIELD OR AVERAGE YIELD OR VOLUME INTEREST RATE PAID VOLUME INTEREST RATE PAID ---------------------------------------------------------------------- (Dollars in thousands) Three Months Ended March 31, 1997 Three Months Ended March 31, 1996 --------------------------------- --------------------------------- <S> <C> <C> <C> <C> <C> <C> INTEREST EARNING ASSETS: Loans $258,103 $ 5,543 8.7% $232,867 $ 5,111 8.8% Investment Securities (1) 63,240 1,088 7.0% 70,167 1,167 6.7% Mortgage-backed Securities 112,840 1,812 6.5% 98,025 1,564 6.4% Other Interest Earning Assets 3,097 44 5.8% 4,898 71 5.8% -------- -------- -------- -------- TOTAL INTEREST EARNING ASSETS $437,280 $ 8,487 7.9% $405,957 $ 7,913 7.8% ======== ======== ======== ======== INTEREST BEARING LIABILITIES: Deposits $328,390 $ 3,480 4.3% $306,972 $ 3,256 4.3% Fed Funds Purchased and Other Interest Bearing Liabilities 10,255 124 4.9% 3,415 42 4.9% Long Term Interest Bearing Liabilities - FHLB Dallas 8,852 127 5.8% 13,413 185 5.5% -------- -------- -------- -------- TOTAL INTEREST BEARING LIABILITIES $347,497 $ 3,731 4.4% $323,800 $ 3,483 4.3% ======== ======== --- ======== ======== --- NET INTEREST SPREAD 3.5% 3.5% === === </TABLE> (1) Interest income includes taxable-equivalent adjustments of $220 and $223 as of March 31, 1997 and 1996, respectively. Noninterest Income Noninterest income was $1,191,000 for the quarter ended March 31, 1997 compared to $1,069,000 for the same period in 1996. A $95,000 increase in deposit services income accounted for most of the change. Deposit services income increased as a direct result of the increase in average deposits and overdraft and return check fee income from March 31, 1996 to March 31, 1997. Other noninterest income increased $41,000 for the quarter ended March 31, 1997 primarily as a result of increases in mortgage servicing release fees received. Gains on sales of securities decreased $14,000 for the three months ended March 31, 1997 compared to the same period in 1996. Sales of securities available for sale were the result of changes in economic conditions and a change in the mix of the securities portfolio. The market value of the entire securities portfolio at March 31, 1997 was $187,415,000 with a net unrealized gain on that date of $642,000. The net unrealized gain is comprised of $1,330,000 in unrealized gains and $688,000 in unrealized losses. 8
10 Noninterest Expense Noninterest expense was $4,077,000 for the quarter ended March 31, 1997, compared to $3,788,000 for the same period of 1996, representing an increase of $289,000 for the period. Salaries and employee benefits increased $184,000 or 7.8% during the three months ended March 31, 1997 when compared to the same period in 1996. Increased direct salary expense including payroll taxes of $233,000 was offset by lower retirement and health insurance expense for the three months ended March 31, 1997 when compared to the same period in 1996. FDIC insurance increased $11,000 for the quarter ended March 31, 1997 compared to the same period of 1996. Future FDIC insurance assessments will be determined by the FDIC based on the funding status of the Bank Insurance Fund. During 1996, Congress passed legislation which increased FDIC insurance expense in 1997 to pay for a portion of the Savings and Loan bailout. This expense increased to $1.29 per hundred dollar of deposits. Provision for Income Taxes The provision for tax expense ratio for the three months ended March 31, 1997 was 25.2% compared to 25.8% for the three months ended March 31, 1996. The reduction is due to an increase in average tax free municipal securities when comparing the two periods. Capital Resources Total shareholders' equity for the Company at March 31, 1997, of $36,352,000 was down .7% or $252,000 from December 31, 1996, and represented 7.3% of total assets at March 31, 1997 compared to 7.6% of total assets at December 31, 1996. Increases to shareholders' equity during the three months ended March 31, 1997 were net income of $1,104,000, common stock (4,527 shares) issued through dividend reinvestment of $79,000 and an increase of $62,000 due to the sale of 9,500 shares of treasury stock. Decreases to shareholders' equity consisted of $732,000 in net unrealized losses on securities available for sale, $323,000 in dividends paid to shareholders and the purchase of 27,271 shares of treasury stock for $477,000. Under the Federal Reserve Board's risk-based capital guidelines for bank holding companies, the minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) is currently eight percent. The minimum Tier 1 capital to risk-adjusted assets is four percent. Through implementation of its capital policies, the company has achieved a sound capital position. The Federal Reserve Board also requires bank holding companies to comply with the minimum leverage ratio guidelines. The leverage ratio is a ratio of bank holding company's Tier 1 capital to its total consolidated quarterly average assets, less goodwill and certain other intangible assets. The guidelines require a minimum average of three percent for bank holding companies that meet certain specified criteria. Failure to meet minimum capital regulations can initiate certain mandatory and possibly additional discretionary actions by regulation, that if undertaken, could have a direct material effect on the Bank's financial statements. At March 31, 1997, the Company and Southside Bank exceeded all regulatory minimum capital requirements. The Federal Reserve Deposit Insurance Act requires bank regulatory agencies to take "prompt corrective action" with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution's treatment for purposes of the prompt corrective action provisions will depend on how its capital levels compare to various capital measures and certain other factors, as established by regulation. 9
11 As of March 31, 1997, the most recent notification from the FDIC categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage ratios. There are no conditions or events since that notification that management believes have changed the institutions' category. It is management's intention to maintain the Company's capital at a level acceptable to all regulatory authorities and future dividend payments will be determined accordingly. Regulatory authorities require that any dividend payments made by either the Company or Southside Bank not exceed earnings for that year. Liquidity and Interest Rate Sensitivity The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest sensitive earning assets and interest bearing liabilities. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing funds to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of new interest income through periods of changing interest rates. Through this process, market value volatility is also a key consideration. Cash, Interest Earning Deposits, Federal Funds Sold and short-term investments with maturities or repricing characteristics of one year or less are the principal sources of asset liquidity. At March 31, 1997, these investments were 19.0% of Total Assets. Historically, the overall liquidity of the Company has been enhanced by a significant aggregate amount of core deposits and by the lack of dependence on public fund deposits. Composition of Loans The Company's main objective is to seek attractive lending opportunities in Smith County, Texas and adjoining counties. Total Average Loans increased $25,236,000 or 10.8% from the three months ended March 31, 1996 to March 31, 1997. The majority of the increase is in Real Estate Loans and Commercial Loans. The increase in Real Estate Loans is due to a stronger real estate market, interest rates and an increased commitment in residential mortgage lending. Commercial loans increased as a result of commercial growth in the Company's market area. Loan Loss Experience and Reserve for Loan Losses For the first quarter ended March 31, 1997, loan charge-offs were $175,000 and recoveries were $63,000, resulting in net charge-offs of $112,000 for the quarter ended March 31, 1997. For the three months ended March 31, 1996, net charge-offs were $134,000. The loan loss reserve is based on the most current review of the loan portfolio at that time. An internal loan review officer of the Company is responsible for an ongoing review of Southside Bank's entire loan portfolio with specific goals set for the volume of loans to be reviewed on an annual basis. A list of loans which are graded as having more than the normal degree of risk associated with them are maintained by the internal loan review officer. This list is updated on a periodic basis but no less than quarterly by the servicing officer in order to properly allocate necessary reserves and keep management informed on the status of attempts to correct the deficiencies noted in the credit. 10
12 While management is aware of certain risk factors within segments of the loan portfolio, reserve allocations have been made on an individual loan basis. An additional reserve is maintained on the remainder of the portfolio of at risk loans that is based on tracking of the Company's loan losses on loans that have not been previously identified as problems. Nonperforming Assets The categories of nonperforming assets consist of delinquent loans over 90 days past due, nonaccrual and restructured loans, other real estate owned and repossessed assets. Delinquent loans over 90 days past due represent loans for which the payment of principal or interest has not been received in a timely manner. The full collection of both the principal and interest is still expected but is being withheld due to negotiation or other items expected to be resolved in the near future. Generally, a loan is categorized as nonaccrual when principal or interest is past due 90 days or more, unless, in the determination of management, the principal and interest on the loan are well secured and in the process of collection. In addition, a loan is placed on nonaccrual when, in the opinion of management, the future collectibility of interest and principal is in serious doubt. When a loan is categorized as nonaccrual, the accrual of interest is discontinued and any remaining accrued interest is reversed in that period; thereafter, interest income is recorded only when actually received. Restructured loans represent loans which have been renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrowers. Categorization of a loan as nonperforming is not in itself a reliable indicator of potential loan loss. Other factors, such as the value of collateral securing the loan and the financial condition of the borrower must be considered in judgments as to potential loan loss. OREO represents real estate taken in full or partial satisfaction of debts previously contracted. The OREO consists primarily of raw land and oil and gas interests. The Company is actively marketing all properties and none are being held for investment purposes. Total nonperforming assets at March 31, 1997 were $2,751,000, up $102,000 or 3.9% from $2,649,000 at March 31, 1996. From March 31, 1996 to March 31 ,1997, loans 90 days past due or more increased $83,000 or 25.1% to $414,000. The majority of the 90 day past due loans are secured by residential dwellings that are primarily owner occupied. Historically, the amount of losses suffered on this type of loan have been significantly less than those on other properties. Restructured loans increased $24,000 or 6.3% to $405,000, other real estate remained the same at $273,000 and nonaccrual loans increased $48,000 or 3.6% to $1,398,000. Repossessed assets decreased $53,000 or 16.9% to $261,000. Expansion During 1996, the Company completed construction on a new seven lane motor bank facility at the North Tyler branch. In addition, the Company opened three full service grocery store branches during the second half of 1996. The branch locations are inside of the Super One Food Store on Troup Highway in Tyler, the Brookshires Food Store in Tyler at Rice Road and South Broadway and the Brookshires Food Store in Lindale. Remodeling and expansion of the main bank headquarters on South Beckham began during the second quarter of 1996 and should be completed during 1997. Forward-Looking Information The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to, statements found in this "Item 2". Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this Quarterly Report could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: general economic conditions, competition, government regulations and possible future litigation, as well as the risks and uncertainties discussed in this Quarterly Report, including, without limitation, the portions referenced above, and the uncertainties set forth from time to time in the Company's other public reports and filings and public statements. 11
13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. 27 - Financial Data Schedule for the three months ended March 31, 1997. (b) Reports on Form 8-K - None 12
14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHSIDE BANCSHARES, INC. (Registrant) BY: /s/ B.G. HARTLEY ------------------------------- B.G. Hartley, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) DATE: 5-09-97 -------------- /s/ LEE R. GIBSON ------------------------------- Lee R. Gibson, Executive Vice President (Principal Financial and Accounting Officer) DATE: 5-09-97 -------------- 13
15 EXHIBIT INDEX <TABLE> <CAPTION> Exhibit Number Description - ------- ----------- <S> <C> 27 Financial Data Schedule for the three months ended March 31, 1997. </TABLE>