1
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 March 31, 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 0-10849
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SOUTHSIDE BANCSHARES CORP.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1262037
------------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3606 GRAVOIS AVENUE, ST. LOUIS, MISSOURI 63116
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 776-7000
----------------
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
------- -------
At MAY 15, 2001, the number of shares outstanding of the registrant's
common stock was 8,417,528.
2
SOUTHSIDE BANCSHARES CORP.
TABLE OF CONTENTS
PAGE
Part I. FINANCIAL INFORMATION (unaudited)
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000 3
Condensed Consolidated Statements of Income for the three months ended
March 31, 2001 and March 31, 2000 4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the three months ended March 31, 2001
and the year ended December 31, 2000 5
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and March 31, 2000 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
3
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(dollars in thousands except per share data)
(unaudited)
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
--------- ------------
Cash and due from banks $ 15,709 $ 17,102
Interest-bearing deposits in banks 325 896
--------- ---------
Cash and cash equivalents 16,034 17,998
--------- ---------
Federal funds sold 37,594 16,383
Investments in debt and equity securities:
Available for sale, at fair value 168,969 158,028
Held to maturity, at amortized cost (fair value of $32,814
in 2001, and $36,660 in 2000) 32,236 36,417
--------- ---------
Total investments in debt and equity securities 201,205 194,445
--------- ---------
Loans, net of unearned discount 474,330 463,406
Less allowance for loan losses 5,318 5,179
--------- ---------
Loans, net 469,012 458,227
--------- ---------
Premises and equipment 16,998 17,206
Other assets 31,815 33,168
--------- ---------
Total assets $ 772,658 $ 737,427
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 73,076 $ 77,196
Interest-bearing demand and savings 231,909 214,326
Time deposits 309,102 282,672
--------- ---------
Total deposits 614,087 574,194
Federal funds purchased -- 5,750
Securities sold under agreements to repurchase 6,036 7,952
FHLB borrowings 70,906 70,947
Other borrowings 1,900 1,900
Debt of Employee Stock Ownership Plan 791 988
Other liabilities 6,816 6,295
--------- ---------
Total liabilities 700,536 668,026
--------- ---------
Commitments and contingent liabilities
Shareholders' equity:
Cumulative preferred stock, no par value, 1,000,000 shares authorized and
unissued -- --
Common stock, $1 par value, 15,000,000 shares authorized, 8,985,378 shares
issued in 2001 and 2000 8,985 8,985
Surplus 5,468 5,516
Retained earnings 63,484 62,592
Unearned Employee Stock Ownership Plan shares (741) (791)
Treasury stock, at cost, 569,850 shares in 2001 and 591,850 shares in 2000 (6,156) (6,394)
Accumulated other comprehensive income (loss) 1,082 (507)
--------- ---------
Total shareholders' equity 72,122 69,401
--------- ---------
Total liabilities and shareholders' equity $ 772,658 $ 737,427
========= =========
See accompanying notes to condensed consolidated financial statements.
3
4
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three months ended March 31, 2001 and March 31, 2000
(dollars in thousands except per share data)
(unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000
---------- ----------
Interest income:
Interest and fees on loans $ 9,478 $ 8,284
Interest on investments in debt and equity
securities:
Taxable 2,642 2,973
Exempt from Federal income taxes 349 393
Interest on short-term investments 342 110
---------- ----------
Total interest income 13,081 11,760
---------- ----------
Interest expense:
Interest on interest-bearing demand and savings 1,679 1,773
deposits
Interest on time deposits 4,423 2,798
Interest on Federal funds purchased 52 31
Interest on securities sold under agreements to
repurchase 78 75
Interest on FHLB borrowings 958 1,171
Interest on other borrowings 39 --
Interest on debt of Employee Stock Ownership Plan 18 22
---------- ----------
Total interest expense 7,247 5,870
---------- ----------
Net interest income 5,834 5,890
Provision for loan losses 159 81
---------- ----------
Net interest income after provision for loan losses 5,675 5,809
---------- ----------
Noninterest income:
Trust fees 287 288
Service charges on deposit accounts 398 378
Gains on the sales of loans 76 2
Other 401 374
---------- ----------
Total noninterest income 1,162 1,042
---------- ----------
Noninterest expenses:
Salaries and employee benefits 2,492 2,275
Net occupancy and equipment expense 683 679
Data processing 211 190
Other 1,289 1,362
---------- ----------
Total noninterest expense 4,675 4,506
---------- ----------
Income before income tax expense 2,162 2,345
Income tax expense 609 671
---------- ----------
Net income $ 1,553 $ 1,674
========== ==========
Share data:
Earnings per common share - basic $ .19 $ .20
========== ==========
Earnings per common share - diluted $ .18 $ .20
========== ==========
Dividends paid per common share $ .08 $ .08
========== ==========
Average common shares outstanding 8,263,280 8,408,318
========== ==========
Average common shares outstanding, including
potentially dilutive shares 8,430,550 8,502,146
========== ==========
See accompanying notes to condensed consolidated financial statements.
4
5
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Three months ended March 31, 2001 and year ended December 31, 2000
(dollars in thousands except per share data)
(unaudited)
ACCUMULATED
OTHER
UNEARNED COMPREHENSIVE
COMMON RETAINED ESOP TREASURY INCOME
STOCK SURPLUS EARNINGS SHARES STOCK (LOSS) TOTAL
------- ------- -------- -------- -------- ------------- -------
Balance at December 31, 1999 $ 8,985 5,431 58,765 (988) (4,335) (3,450) 64,408
Comprehensive income:
Net income -- -- 6,487 -- -- -- 6,487
Change in net unrealized
gain (loss) on available
for sale securities,
net of tax effect -- -- -- -- -- 2,943 2,943
------- ------- ------- ------- ------- ------- -------
Total comprehensive
income -- -- 6,487 -- -- 2,943 9,430
Cash dividends paid ($.32
per share) -- -- (2,660) -- -- -- (2,660)
Allocation of 37,062 shares
to ESOP participants -- 85 -- 197 -- -- 282
Purchase of 200,100 common
shares for treasury -- -- -- -- (2,059) -- (2,059)
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2000 8,985 5,516 62,592 (791) (6,394) (507) 69,401
Comprehensive income:
Net income -- -- 1,553 -- -- -- 1,553
Change in net unrealized
gain (loss) on available
for sale securities,
net of tax effect -- -- -- -- -- 1,589 1,589
------- ------- ------- ------- ------- ------- -------
Total comprehensive
income -- -- 1,553 -- -- 1,589 3,142
Cash dividends paid ($.08
per share) -- -- (661) -- -- -- (661)
Allocation of 9,265 shares
to ESOP participants -- 51 -- 50 -- -- 101
Exercise of 22,000 stock
options -- (99) -- -- 238 -- 139
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 2001 $ 8,985 5,468 63,484 (741) (6,156) 1,082 72,122
======= ======= ======= ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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6
SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2001 and March 31, 2000
(dollars in thousands)
(unaudited)
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 1,553 1,674
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 432 559
Provision for loan losses 159 81
Gains on sale of loans (76) (2)
Other operating activities, net 1,096 778
Originations of loans for sale (6,460) (318)
Proceeds from sale of loans 5,529 320
-------- --------
Net cash provided by operating activities 2,233 3,092
-------- --------
Cash flows from investing activities:
Net increase in Federal funds sold (21,211) (4,781)
Proceeds from maturities of and principal payments on debt securities 20,569 14,593
Purchases of debt securities (25,007) (9,566)
Net increase in loans (9,971) (14,255)
Recoveries of loans previously charged off 34 141
Purchases of premises and equipment (78) (416)
Proceeds from sales of other real estate owned and other foreclosed
property -- 14
-------- --------
Net cash used in investing activities (35,664) (14,270)
-------- --------
Cash flows from financing activities:
Net increase in demand and savings deposits 13,463 11,797
Net increase (decrease) in time deposits 26,430 (839)
Net decrease in federal funds purchased (5,750) --
Net decrease in securities sold under agreements to repurchase (1,916) (2)
Proceeds from FHLB borrowings -- 8,000
Repayments of FHLB borrowings (41) (10,043)
Repayment of ESOP debt (197) (198)
Stock options exercised 139 --
Cash dividends paid (661) (673)
-------- --------
Net cash provided by financing activities 31,467 9,724
-------- --------
Net decrease in cash and cash equivalents (1,964) (1,454)
Cash and cash equivalents, beginning of period 17,998 19,470
-------- --------
Cash and cash equivalents, end of period $ 16,034 18,016
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period for:
Interest on deposits and borrowings $ 7,084 5,861
Income taxes 200 50
Noncash transactions -
Transfers to other real estate owned in settlement of loans -- 144
======== ========
See accompanying notes to condensed consolidated financial statements.
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SOUTHSIDE BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and footnotes
required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. In
the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation have
been included. For further information, refer to Southside Bancshares
Corp.'s (the Company or Southside) Annual Report on Form 10-K for the
year ended December 31, 2000. Operating results for the three months
ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001.
(2) SEGMENT INFORMATION
The responsibility for management of the subsidiary banks remains with
the officers and directors of the respective banks. The financial
performance of the Company is measured internally by subsidiary bank
results and key performance measures. The following tables show the
financial information of the Company's subsidiary banks, South Side
National Bank in St. Louis (SSNB), State Bank of Jefferson County
(SBJC), Bank of Ste. Genevieve County (BSG), and The Bank of St.
Charles County (BSCC) for the three months ended March 31, 2001 and
2000. The "Other" column includes the Parent Company and all
intercompany elimination entries.
THREE MONTHS ENDED MARCH 31, 2001
--------------------------------------------------------------------------
SSNB SBJC BSG BSCC OTHER CONSOLIDATED
-------- -------- -------- ------- ------- ------------
(dollars in thousands)
Results of Operations:
Net interest income $ 3,753 $ 689 $ 902 $ 547 $ (57) $ 5,834
Provision for loan losses 150 9 -- -- -- 159
Noninterest income 751 92 136 101 82 1,162
Noninterest expense 2,914 485 423 366 487 4,675
Income tax expense (benefit) 384 92 202 87 (156) 609
Net income 1,056 195 413 195 (306) 1,553
Average Balances:
Loans $310,366 $ 54,946 $ 58,358 $ 43,403 $ -- $467,073
Assets 502,784 76,572 99,573 65,689 6,757 751,375
Deposits 376,926 67,342 86,565 59,540 -- 590,373
Financial Ratios:
Return on assets 0.84% 1.02% 1.66% 1.19% -- 0.83%
Return on equity 9.33 11.90 15.79 13.63 -- 8.81
Net interest margin 3.40 4.06 3.99 3.91 -- 3.51
======== ======== ======== ======== ======== ========
THREE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------------------------
SSNB SBJC BSG BSCC OTHER CONSOLIDATED
-------- -------- -------- ------- ------- ------------
(dollars in thousands)
Results of Operations:
Net interest income $ 3,743 $ 636 $ 946 $ 587 $ (22) $ 5,890
Provision for loan losses 75 -- -- 6 -- 81
Noninterest income 669 88 119 95 71 1,042
Noninterest expense 2,782 464 444 371 445 4,506
Income tax expense (benefit) 432 79 198 98 (136) 671
Net income 1,123 181 423 207 (260) 1,674
Average Balances:
Loans $248,278 $ 48,309 $ 56,522 $ 42,516 $ -- $395,625
Assets 452,741 68,142 93,338 62,321 5,554 682,096
Deposits 321,691 58,812 81,288 56,662 (79) 518,374
Financial Ratios:
Return on assets 0.99% 1.06% 1.81% 1.33% -- 0.98%
Return on equity 11.18 11.89 17.65 15.80 -- 10.34
Net interest margin 3.78 4.20 4.46 4.18 -- 3.94
======== ======== ======== ======== ======== ========
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion is presented to provide an understanding of Southside
Bancshares Corp. and subsidiaries (the "Company" or "Registrant") consolidated
financial condition and the results of operations for the three months ended
March 31, 2001 and 2000.
The Company's net income is derived primarily from the net interest income
of its subsidiary banks. Net interest income is the difference (or spread)
between the interest income the subsidiary banks receive from their loan and
investment portfolios and their cost of funds, consisting primarily of the
interest paid on deposits and borrowings. Net income is also affected by the
levels of provisions for loan losses, noninterest income, and noninterest
expense.
Statements contained in this Report and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive officer
which are not historical or current facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (Section 27A of the Securities Act of 1993, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended). Such statements
are based on management's beliefs, and assumptions made by and information
currently available to management, and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those currently anticipated or projected. When used in
the Company's documents or oral presentations, the words "anticipates,"
"believes," "estimates," "expects," "intends," "forecasts," "plan," "projects,"
and similar expressions are intended to identify such forward-looking
statements. There can be no assurance that such forward-looking statements will
in fact transpire. The following important factors, risks and uncertainties,
among others, could cause actual results to differ materially from such
forward-looking statements: (1) credit risk, (2) interest rate risk, (3)
competition, (4) changes in the regulatory environment and (5) changes in
general business and economic trends. The foregoing list should not be construed
as exhaustive and the Company disclaims any obligation to subsequently update or
revise any forward-looking statements after the date of this Report.
8
9
Item 2. (continued)
FINANCIAL HIGHLIGHTS
COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
THREE MONTHS TWELVE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, 2001 DECEMBER 31, 2000 MARCH 31, 2000
--------------- ----------------- --------------
Earnings:
Total interest income $ 13,081 49,827 11,760
Total interest expense 7,247 26,482 5,870
---------- ---------- ----------
Net interest income 5,834 23,345 5,890
Provision for loan losses 159 361 81
---------- ---------- ----------
Net interest income after provision for loan losses $ 5,675 22,984 5,809
========== ========== ==========
Net income $ 1,553 6,487 1,674
========== ========== ==========
Share Data:
Earnings per common share:
Basic $ .19 .78 .20
Diluted .18 .77 .20
Dividends paid per common share .08 .32 .08
Book value(1) 8.71 8.42 7.74
Tangible book value(1) 8.31 8.01 7.31
Shares outstanding (period-end)(1) 8,415,528 8,393,528 8,593,628
Average shares outstanding 8,263,280 8,363,828 8,408,318
Average shares outstanding, including potentially dilutive shares 8,430,550 8,437,139 8,502,146
========== ========== ==========
Financial Position:
Total assets $ 772,658 737,427 690,027
Total deposits 614,087 574,194 528,446
Total loans, net of unearned discount 474,330 463,406 405,321
Allowance for loan losses 5,318 5,179 4,825
Short-term borrowings 6,036 13,702 8,605
FHLB borrowings 70,906 70,947 81,878
Other borrowings 1,900 1,900 --
Debt of Employee Stock Ownership Plan 791 988 988
Total shareholders' equity 72,122 69,401 65,162
========== ========== ==========
SELECTED RATIOS
The table below summarizes various selected ratios as of the end and for the
periods indicated.
THREE MONTHS TWELVE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, 2001(2) DECEMBER 31, 2000 MARCH 31, 2000(2)
----------------- ----------------- -----------------
Loan-to-deposit ratio 77.24% 80.71% 76.70%
Allowance for loan losses to total loans 1.12 1.12 1.19
Dividend payout ratio 42.11 41.03 40.00
Return on average assets .83 .92 .98
Return on average shareholders' equity 8.81 9.76 10.34
Net interest margin on average interest-earning assets 3.51 3.76 3.94
Average shareholders' equity to average total assets 9.39 9.37 9.50
Tier I leverage capital to adjusted total consolidated assets
less intangibles 9.05 9.15 9.61
Tier I capital to risk-weighted assets 12.98 13.66 14.87
Total capital to risk-weighted assets 14.00 14.72 15.97
======= ======= =======
(1) Shares outstanding at March 31, 2001, December 31, 2000 and March 31, 2000
include 138,982, 148,248, 176,044 shares, respectively, held by the ESOP
which have not been allocated to participants' accounts and thus are not
considered outstanding for purposes of computing book value and tangible
book value per share. These unallocated shares are also excluded from the
average shares outstanding used to compute earnings per common share.
(2) Statistical information is annualized where applicable.
9
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Item 2. (continued)
FINANCIAL POSITION
Total consolidated assets of the Company have increased $35,231,000 during
the first quarter of 2001 to $772,658,000 at March 31, 2001 compared to
$737,427,000 at December 31, 2000. In addition, total assets of the Company have
increased $82,631,000, or 12%, over the past twelve months. The Company's
strategic business plan includes growth as one of the Company's priorities, and
over the past several quarters, the Company has experienced significant growth
in loans, deposits and total assets.
LOAN PORTFOLIO
The Company's loan portfolio consists of business loans to small and
medium size companies, commercial, construction and residential real estate
loans, and consumer loans. Traditionally, the majority of the loan portfolio has
focused on real estate as an integral component of a credit's underlying source
of collateral. The following table is a breakdown of the Company's loan
portfolio as of the end of the periods indicated.
MARCH 31, 2001 DECEMBER 31, 2000 MARCH 31, 2000
-------------- ----------------- --------------
(in thousands)
Commercial, financial and agricultural $ 80,325 78,586 73,397
Real estate-commercial 170,818 157,771 137,858
Real estate-construction 28,091 28,808 19,790
Real estate-residential 158,241 161,252 141,460
Consumer 26,642 27,189 23,857
Other loans 10,213 9,800 8,959
-------- -------- --------
$474,330 463,406 405,321
======== ======== ========
The Company's loan portfolio totaled $474,330,000 at March 31, 2001, which
represents an increase of $10,924,000 or 2.36%, since December 31, 2000, and an
increase of $69,009,000 or 17.03%, over the past twelve months. These increases
in the loan portfolio were the result of the Company continuing to execute
elements of its strategic business plan, as the Company's banking subsidiaries
continue to attract customers who are dissatisfied with the service level of the
area's larger financial institutions. The decrease in residential real estate
loans can be attributed to the drop in interest rates during 2001. In contrast
to 2000 when the majority of the residential real estate loan customers were
opting for adjustable rate mortgage products, some of those same customers are
now refinancing their adjustable rate mortgages into longer term fixed rate
mortgage products, which are sold into the secondary market.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
THREE MONTHS TWELVE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, 2001 DECEMBER 31, 2000 MARCH 31, 2000
--------------- ------------------ ---------------
(in thousands)
Balance at beginning of period $ 5,179 5,830 5,830
Provision charged to expense 159 361 81
Loans charged off (54) (1,487) (1,227)
Recoveries 34 475 141
------- ------- -------
Balance at end of period $ 5,318 5,179 4,825
======= ======= =======
10
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Item 2. (continued)
The balance of the allowance for loan losses increased by $139,000 during
the first quarter of 2001. The increase in the allowance was due to the fact
that net charge offs for the quarter were $20,000, and the Company recorded a
provision for loan losses of $159,000. Based upon the Company's internal
analysis of the adequacy of the allowance for loan losses, management of the
Company believes the level is adequate to cover probable losses inherent in the
loan portfolio under current conditions. The ratio of allowance for loan losses
as a percentage of total loans was 1.12% as of March 31, 2001 compared to 1.12%
and 1.19% at December 31, 2000 and March 31, 2000.
NONPERFORMING ASSETS
MARCH 31, 2001 DECEMBER 31, 2000 MARCH 31, 2000
-------------- ----------------- --------------
(dollars in thousands)
Nonaccrual loans $4,602 4,200 4,287
Loans past due 90 days or more and still
accruing interest 143 339 62
------ ------ ------
Total nonperforming loans 4,745 4,539 4,349
Other real estate owned 1,574 1,597 947
------ ------ ------
Total nonperforming assets $6,319 6,136 5,296
====== ====== ======
Ratios:
Total nonperforming loans as % of total loans 1.00% 0.98% 1.07%
Nonperforming assets as % of total loans and
other real estate owned 1.33 1.32 1.30
Nonperforming assets as % of total assets .82 .83 .77
Allowance for loan losses as a % of
nonperforming loans 112.08 114.10 110.95
====== ====== ======
Nonperforming assets totaled $6,319,000 or .82% of total assets at March
31, 2001 compared to $6,136,000 or .83% and $5,296,000 or .77% at December 31,
2000 and March 31, 2000, respectively. Nonaccrual loans increased $402,000
during the first quarter of 2001 and accounted for the majority of the increase
in nonperforming assets.
A loan is reported as impaired when it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The Company's loan policy generally requires that a credit meeting
the above criteria be placed on nonaccrual status. Additionally, loans, which
are past due more than 90 days as to payment of principal or interest, are also
considered to be impaired. These loans are included in the total of
nonperforming assets.
Loans past due less than 90 days are generally not considered impaired;
however, a loan which is current as to payments may be determined by management
to demonstrate some of the characteristics of an impaired loan. In these cases,
the loan is classified as impaired while management evaluates the appropriate
course of action. The Company's primary basis for measurements of impaired loans
is the collateral underlying the identified loan.
11
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Item 2. (continued)
Any loans classified for regulatory purposes, but not included above in
nonperforming loans, do not represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the borrower's ability to comply with the loan repayment terms or which
management reasonably expects will materially impact future operating results or
capital resources. As of March 31, 2001, there were no concentrations of loans
exceeding 10% of total loans, which were not disclosed as a category of loans,
detailed on page 10.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investments in debt and equity securities have increased $6,760,000 since
December 31, 2000, due in large part to the deposit growth experienced during
the year. With additional loan growth and some certificate of deposit runoff
expected during 2001, management anticipates the investment portfolio may
decline through investment security maturities and paydowns on mortgage-backed
securities.
DEPOSITS
Total deposits increased $39,893,000 during the first quarter of 2001, due
largely to a decision made during 2000 to replace short-term borrowed funds,
used to fund loan growth, with certificates of deposit. The increase in time
deposits during the first quarter of 2001 was $26,430,000. Management continues
to monitor the rates being offered, the impact of the deposits on rate
sensitivity and the extent to which we are able to cross-sell additional
products and services to new time deposit customers. In addition,
interest-bearing demand and savings accounts also increased during the first
quarter by $17,583,000. Much of this increase can be attributed to the
volatility in the stock market during the first quarter and customers' desire
to increase their cash positions.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (REPOs) decreased
$1,916,000 during 2001. The majority of the Company's REPOs are used by larger
commercial customers as a daily cash management tool, therefore, depending on
their individual liquidity positions, the balances in these accounts can vary
considerably.
FEDERAL HOME LOAN BANK (FHLB) BORROWINGS
FHLB borrowings are used by the Company for a variety of purposes.
Approximately $48,000,000 of the borrowings has been used to fund leveraged
strategies, whereby the Company borrowed funds and used the proceeds to purchase
investment securities. The yield on the investments exceeds the borrowing cost
and provides the Company with additional net interest income. Approximately
$1,750,000 of the borrowings has been used by one of the Company's subsidiary
banks to fund longer-term fixed rate residential real estate loans. The
remaining $21,000,000 is used by the Company to meet short-term liquidity needs.
OTHER BORROWINGS
The $1,900,000 balance in this category represents borrowings from an
unaffiliated financial institution under a $5 million line of credit. The line
of credit was established to provide the resources necessary to fund the
Company's stock repurchase plan announced during the third quarter of 2000. The
plan authorizes the Company to repurchase a total of 430,000 common shares or 5%
of the Company's outstanding shares. To date, the Company has repurchased
200,100 common shares under the repurchase program at an average cost of $10.29
per common share.
DEBT OF EMPLOYEE STOCK OWNERSHIP PLAN
The decrease in the debt of the Employee Stock Ownership Plan was due to
the annual principal reduction on the loan, which is paid in March each year.
12
13
Item 2. (continued)
ASSET/LIABILITY MANAGEMENT
As reflected on the Repricing and Interest Rate Sensitivity Analysis on
the following page, the Company has a reasonably well-balanced interest rate
sensitivity position. The Company's current one-year cumulative gap is 0.96x.
Management believes a one-year cumulative gap ratio in a range of 0.80x - 1.20x
indicates an entity is not subject to undue interest rate risk. A one-year
cumulative gap ratio of 1.00x indicates that an institution has an equal amount
of assets and liabilities repricing within twelve months. A ratio in excess of
1.00x indicates more assets than liabilities will be repriced during the period
indicated, and a ratio less than 1.00x indicates more liabilities than assets
will be repriced during the period indicated. However, actual experience may
differ because of the assumptions used in the allocation of deposits and other
factors, which are beyond management's control. Among the significant
assumptions used in preparing the Repricing and Interest Rate Sensitivity
Analysis is that interest-bearing demand and savings deposits are not 100% rate
sensitive within the period of three months or less. As a result, these deposits
are allocated between the repricing categories based on historical analyses
performed by the Company's subsidiary banks. In addition, FHLB borrowings are
categorized based on the first available call date of the individual borrowings
versus their final maturity.
13
14
Item 2. (continued)
Additionally, the following analysis includes the available-for-sale
securities spread throughout their respective repricing and/or maturity
horizons, even though such securities are available for immediate liquidity
should the need arise in any particular time horizon.
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS
MARCH 31, 2001
---------------------------------------------------------------------
OVER OVER
3 MONTHS 1 YEAR
3 MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
--------- --------- ------- ------- ---------
(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits in banks $ 325 -- -- -- 325
Federal funds sold 37,594 -- -- -- 37,594
Investments available-for-sale 28,924 20,250 71,547 48,248 168,969
Investments held-to-maturity 5,888 6,973 8,670 10,705 32,236
Loans, net of unearned discount(1) 285,515 45,565 127,194 16,056 474,330
-------- -------- -------- -------- --------
Total interest-earning assets 358,246 72,788 207,411 75,009 713,454
-------- -------- -------- -------- --------
Cumulative interest-earning assets 358,246 431,034 638,445 713,454 713,454
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits 71,608 45,118 41,357 15,315 173,398
Savings deposits 16,467 14,651 21,129 6,264 58,511
Time deposits under $100,000 56,231 146,788 50,659 136 253,814
Time deposits $100,000 and over 16,268 34,180 4,840 -- 55,288
Securities sold under agreements to
repurchase 6,036 -- -- -- 6,036
FHLB borrowings 30,000 8,000 31,152 1,754 70,906
Other borrowings -- 1,900 -- -- 1,900
Debt of Employee Stock Ownership
Plan -- -- 791 -- 791
-------- -------- -------- -------- --------
Total interest-bearing liabilities 196,610 250,637 149,928 23,469 620,644
-------- -------- -------- -------- --------
Cumulative interest-bearing liabilities 196,610 447,247 597,175 620,644 620,644
-------- -------- -------- -------- --------
Gap analysis:
Interest sensitivity gap $161,636 (177,849) 57,483 51,540 92,810
======== ======== ======== ======== ========
Cumulative interest sensitivity gap $161,636 (16,213) 41,270 92,810 92,810
======== ======== ======== ======== ========
Cumulative gap ratio of interest-
earning assets to interest-bearing 1.82x 0.96x 1.07x 1.15x 1.15x
======== ======== ======== ======== ========
(1) Nonaccrual loans are reported in the "Over 1 year through 5 years" column.
14
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Item 2. (continued)
CAPITAL RESOURCES
The regulatory capital guidelines require banking organizations to
maintain a minimum total capital ratio of 8% of risk-weighted assets (of which
at least 4% must be Tier I capital). The Company's total capital ratios under
the risk-weighted guidelines were 14.00%, 14.72% and 15.97% as of March 31,
2001, December 31, 2000, and March 31, 2000, respectively, which included Tier I
capital ratios of 12.98%, 13.66%, and 14.87%, respectively. These ratios are
well above the minimum risk-weighted capital requirements.
In addition, the Company and its subsidiary banks must maintain a minimum
Tier I leverage ratio (Tier I capital to total adjusted consolidated assets) of
at least 3%. Capital, as defined under these guidelines, is total shareholders'
equity less goodwill and excluding unrealized gains and losses on
available-for-sale securities of the Company. The Company's Tier I leverage
ratios were 9.05%, 9.15%, and 9.61% at March 31, 2001, December 31, 2000, and
March 31, 2000, respectively. As of March 31, 2001, all of the Company's
subsidiary banks were well capitalized under the regulatory framework for prompt
corrective action.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income was $1,553,000 for the three months ended March 31, 2001
compared to $1,674,000 for the three months ended March 31, 2000, which
represents a $121,000 or a 7% decrease over the prior year. The decrease in
first quarter earnings can be attributed to a combination of factors. First, net
interest income declined $56,000 on a quarter comparison due to the sharp
decline in interest rates during the first quarter. These rate cuts caused the
prime-lending rate to decrease 150 basis points during the quarter. Commercial
and home equity loans tied to the prime-lending rate and yields on Federal funds
sold are adjusted downward instantaneously with these interest rate cuts;
however, deposits and borrowing costs typically adjust over time as deposits and
borrowings mature and interest rates on transaction and savings deposits are
gradually changed to reflect the current interest rate environment. Second, in
light of the Company's continued growth, the provision for loan losses increased
$78,000 in the first quarter of 2001 compared to the prior year first quarter.
Finally, noninterest expense was $169,000 higher in the first quarter of 2001
compared to 2000.
Basic and diluted earnings per common share were $.19 and $.18,
respectively, for the first quarter of 2001, compared to $.20 and $.20 for the
first quarter of 2000, respectively. Net income for the first quarter of 2001
resulted in an annualized return on average assets (ROA) of .83% compared to
.98% in the first quarter of 2000, and an annualized return on average
shareholders' equity (ROE) of 8.81% compared to 10.34% the first quarter of
2000.
NET INTEREST INCOME
As reflected in the Condensed Consolidated Average Balance Sheets and
Average Interest Rates table on the following page, net interest income on a
tax-equivalent basis decreased by $63,000 in the first quarter of 2001 when
compared to the first quarter of 2000. Net interest income decreased because the
yield on average earnings assets remained relatively unchanged, but the
Company's cost of funds increased 49 basis points to 4.81 percent. This increase
in the cost of funds more than offset the additional interest income generated
by a $69,095,000 increase in average-earning assets. Much of the asset growth
over the past three quarters was funded through an 11-month certificate of
deposit promotion. When the prime-lending rate dropped 150 basis points during
the first quarter 2001, it caused a very narrow interest margin when matched
against the rates offered during the promotion. The deposits will begin to
mature during the third quarter of this year. As these deposits reprice in the
current interest rate environment, it is expected to provide the Company with
some relief from the downward pressure on the net interest margin.
15
16
Item 2. (continued)
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE INTEREST RATES
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
2001 2000
--------------------------------- -------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID(3) BALANCE EXPENSE PAID(3)
----------- -------- ------- --------- -------- --------
(dollars in thousands)
Loans, net of unearned discount (1) (2) (3) $ 467,07 $ 9,796 8.39% $ 395,625 $ 8,317 8.41%
Investments in debt securities:
Taxable(4) 169,284 2,642 6.24 186,585 2,973 6.37
Exempt from Federal income tax (3) (4) 28,646 529 7.38 31,400 595 7.58
Short-term investments 25,826 342 5.30 8,124 110 5.42
----------- -------- --------- --------
Total interest-earning assets/interest
income/overall yield (3) 690,829 13,309 7.71 621,734 11,995 7.72
-------- ======= -------- =======
Allowance for loan losses (5,209) (5,818)
Cash and due from banks 16,763 16,820
Other assets 48,992 49,360
----------- ---------
Total assets $ 751,375 $ 682,096
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand and savings deposits $ 222,502 1,679 3.02% $ 227,550 1,773 3.12%
Time deposits 296,309 4,423 5.97 221,049 2,798 5.06
Short-term borrowings 9,651 130 5.39 9,300 106 4.56
FHLB borrowings 70,934 958 5.40 83,984 1,171 5.58
Other borrowings 1,900 39 8.21 -- -- --
Debt of Employees Stock Ownership Plan 960 18 7.50 1,153 22 4.32
----------- -------- --------- --------
Total interest-bearing liabilities/interest-
expense/overall rate 602,256 7,247 4.81 543,036 5,870 4.32
-------- ======= -------- =======
Non-interest-bearing demand deposits 71,562 69,775
Other liabilities 7,037 4,500
Shareholders' equity 70,520 64,785
----------- ---------
Total liabilities and shareholders' equity $ 751,375 $ 682,096
=========== =========
Net interest income $ 6,062 $ 6,125
======== ========
Net interest margin on average
interest-earning assets 3.51% 3.94%
======= =======
(1) Interest income includes loan origination fees.
(2) Average balance includes nonaccrual loans.
(3) Interest yields are presented on a tax-equivalent basis. Nontaxable income
has been upwardly adjusted by the amount of Federal income tax that would
have been paid if the income had been taxable at a rate of 34%, adjusted
downward by the disallowance of the interest cost to carry nontaxable loans
and securities.
(4) Includes investments available-for-sale.
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17
Item 2. (continued)
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $159,000 during the first
quarter of 2001 from $81,000 in 2000. The increase in the provision for loan
losses was largely due to the significant loan growth achieved over the past
several quarters resulting in increased risk. With additional loan growth
projected in 2001, management anticipates that a larger provision for loan
losses, as compared to the prior year, will continue throughout the year. Based
on the Company's analysis of the adequacy of the allowance for loan losses,
management determined it was appropriate to increase the provisions for loan
losses in 2001. Management will continue to assess the adequacy of the
allowance for loan losses on a regular basis throughout the year.
NONINTEREST INCOME
Noninterest income increased $120,000 during the first quarter of 2001 in
comparison to the first quarter of the prior year. The increase was due in large
part to a $74,000 increase in the gains on sales of loans. As mentioned
previously, with the decrease in interest rates during the first quarter, the
Company experienced a shift in customer preference from adjustable rate loan
products to fixed rate mortgage loan products, which are sold into the secondary
market. The increase in these gains is directly the result of a significant
increase in the volume of loans being sold into secondary market. In addition,
increases in service charge and other revenue contributed to the increase in
noninterest income.
NONINTEREST EXPENSE
Noninterest expense increased $169,000 during the first quarter of 2001 in
comparison to the first quarter of 2000. The increase was mainly the result of a
$217,000 increase in salaries and employee benefits, which was partially offset
by a $73,000 decrease in other expense. The increase in salaries and employee
benefits was due in part to normal increases, as well as, increased health
insurance costs and higher personnel costs resulting from an extremely tight
labor market, which forced the Company to make salary adjustments to attract and
retain qualified employees. The decrease in other expenses was due to small
decreases in a variety of normal operating expenditures.
INCOME TAXES
Income tax expense for the first quarter of 2001 was $609,000 compared to
$671,000 in the first quarter of 2000. The Company's combined Federal and state
effective tax rate decreased slightly to 28.17% in 2001, compared to 28.61% in
2000. The Company's effective tax rate is impacted by tax-exempt loan and
security income, income generated by the company-owned life insurance, which is
exempt from Federal and state income taxes and Federal and state tax credits
associated with the Company's investment in low- and moderate-income housing
projects.
SUBSEQUENT EVENT
On April 30, 2001, the Company and Allegiant Bancorp, Inc., a Missouri
corporation ("Allegiant"), entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which Allegiant will acquire the Company. The
acquisition is structured as the merger (the "Merger") of Allegiant with and
into the Company, with the Company as the surviving corporation (the "Surviving
Corporation") in the Merger. Although the Merger is expected to be completed
during the fourth quarter, there can be no assurance that the Merger will be
completed.
In accordance with the terms of the Merger Agreement in connection with
the Merger:
- each share of the Company's common stock, par value $1.00 per
share, and the associated preferred share purchase rights under
the Company's Rights Agreement, dated May 27, 1993, (together,
the "Southside Common Stock"), issued and outstanding
immediately prior to the effective time of the Merger (the
"Effective Time") shall be converted into the right to receive
either: (i) $14.00 in cash; (ii) 1.39 shares of common stock in
the Surviving
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18
Item 2. (continued)
Corporation, par value $0.01 per share ("Surviving Corporation
Common Stock"); or (iii) a combination of cash and shares of
Surviving Corporation Common Stock calculated in accordance with
the formula set forth in the Merger Agreement (collectively, the
"Southside Merger Consideration"); and
- each share of Allegiant common stock, par value $0.01 per share
(the "Allegiant Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be converted into
one share of Surviving Corporation Common Stock.
Pursuant to the terms of the Merger Agreement, each shareholder of
the Company will elect what proportion of cash and Surviving Corporation Common
Stock such shareholder desires to receive in exchange for such shareholder's
shares of Company Common Stock (the "Shareholder Election"); provided that
each such Shareholder Election is subject to reallocation in accordance with the
formula set forth in the Merger Agreement to ensure that the aggregate Southside
Merger Consideration payable to the Company's shareholders will be comprised of
50% cash and 50% stock.
Consummation of the Merger is subject to various conditions, including:
(i) approval of the Merger Agreement and the Merger by the shareholders of the
Company and Allegiant; (ii) receipt of requisite regulatory approvals from the
Board of Governors of the Federal Reserve System and other federal and state
regulatory authorities as necessary; (iii) receipt by each of the Company and
Allegiant of an opinion of counsel in reasonably satisfactory form as to the tax
treatment of certain aspects of the Merger; (iv) the registration pursuant to
the Securities Act of 1933, as amended (the "Act"), of the shares of Surviving
Corporation Common Stock to be issued in the Merger; and (v) satisfaction of
other customary conditions included in the Merger Agreement.
The Merger Agreement and the transactions contemplated thereby will be
submitted for approval at meetings of the shareholders of the Company and
Allegiant, respectively. The Company will file a registration statement with the
Securities and Exchange Commission registering under the Act the shares of
Surviving Corporation Common Stock to be issued in the Merger. The shares of
Surviving Corporation Common Stock will be offered to the Company's shareholders
pursuant to a prospectus that will also serve as a proxy statement for the
shareholders' meetings.
As a result of the Company and Allegiant entering into the Merger
Agreement, all of the conditions to the Company's previously announced tender
offer to purchase 1,100,000 shares of its common stock, which commenced on
January 9, 2001, were not satisfied, and, therefore, the Company determined to
terminate the tender offer on May 1, 2001. The Company instructed its exchange
agent for the tender offer to promptly return all shares of its common stock
tendered pursuant to the tender offer and not withdrawn.
EFFECT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, which was issued in June 1998,
establishes accounting and reporting standards for derivative instruments and
hedging activities. Under SFAS 133, derivatives are recognized on the balance
sheet at fair value as an asset or liability. Changes in the fair value of
derivatives are reported as a component of other comprehensive income or
recognized as earnings through the income statement depending on the nature of
the instrument. In June 1999, the FASB issued SFAS 137 - Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, an Amendment of FASB Statement No. 133, which defers
the effective date of SFAS 133 from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Initial application should be as
of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated and documented pursuant to the provisions of
SFAS 133, as amended. Earlier application of all of the provisions is encouraged
but is permitted only as of the beginning of any fiscal quarter that begins
after the issuance date of SFAS 133, as amended. Additionally, SFAS 133, as
amended should not be applied retroactively to financial statements of prior
periods. In June 2000, the FASB issued SFAS No. 138 - Accounting for
18
19
Derivative Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133, which addresses a limited number of issues causing implementation
difficulties for numerous entities that apply SFAS 133, as amended. SFAS 138
amends the accounting and reporting standards of SFAS 133, as amended, for
certain derivative instruments, certain hedging activities and for decisions
made by the FASB relating to the Derivatives Implementation Group (DIG) process.
The adoption of SFAS 133 did not have a material impact on the financial
condition and results of operations of the Company. The Company generally does
not utilize deriviative instruments in its interest rate management process.
COMMON STOCK - MARKET PRICE AND DIVIDENDS
The table below sets forth the high, low and closing bid prices of the
Company's common stock for the periods presented. The Company's common stock is
traded on the National Association of Securities Dealers Automated Quotation
System/Small-Cap Market System ("NASDAQ/SCM") under the symbol SBCO.
Accordingly, information included below represents the high and low bid prices
of the common stock reported on NASDAQ/SCM.
DIVIDENDS
PAID PER
BOOK MARKET/ COMMON
HIGH BID LOW BID CLOSE VALUE BOOK SHARE
---------- ----------- ---------- --------- ---------- ----------
1st Quarter - 2001 $ 11.50 $ 7.375 $ 10.875 $ 8.71 124.86% $ .08
4th Quarter - 2000 8.50 6.875 7.375 8.42 87.59 .08
3rd Quarter - 2000 10.00 7.375 8.00 8.08 99.01 .08
2nd Quarter - 2000 9.25 6.50 7.438 7.91 94.03 .08
1st Quarter - 2000 10.00 7.50 7.625 7.75 98.39 .08
========== ============ ========= ========= ========== =========
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
There have been no material changes from the information provided in
the December 31, 2000 Annual Report on Form 10-K.
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20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company had certain routine lawsuits
pending at March 31, 2001. In the opinion of management, after consultation with
legal counsel, none of these lawsuits will have a material adverse effect on the
consolidated financial condition of the Company.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On May 8, 2001, the Company filed a report on Form 8-K, which included
the Agreement and Plan of Merger between Southside Bancshares Corp. and
Allegiant Bancorp dated April 30, 2001.
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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 CORP.
----------------------------------------
May 15, 2001 /s/ Thomas M. Teschner
------------ ----------------------------------------
Thomas M. Teschner
President
(Principal Executive Officer)
May 15, 2001 /s/ Joseph W. Pope
------------ ----------------------------------------
Joseph W. Pope
Senior Vice President and Chief
Financial Officer (Principal Financial
Officer, Controller, and Principal
Accounting Officer)
21